{"id":560995,"date":"2012-06-27T03:34:20","date_gmt":"2012-06-27T07:34:20","guid":{"rendered":"https:\/\/vrbbd.wpengine.com\/vrbbgreenbay\/learn-dynamics-save-deal\/"},"modified":"2022-01-31T12:44:38","modified_gmt":"2022-01-31T17:44:38","slug":"learn-dynamics-save-deal","status":"publish","type":"post","link":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/learn-dynamics-save-deal\/","title":{"rendered":"Learn the Dynamics and Save the Deal"},"content":{"rendered":"
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Many business owners are unfamiliar with the dynamics of selling a company, because they have never done so. There are numerous possible \u201cdeal breakers.\u201d\u00a0 Being aware of the following pitfalls and their remedies should help prevent the possibility of an aborted transaction.<\/p>\n

Neglecting the\u00a0 Running of Your Business<\/strong><\/b>
\nA major reason companies with sales under $20 million become derailed during the selling process is that the owner becomes consumed with the pending transaction and neglects the day to day operation of the business.\u00a0 At some time during the selling process, which can take six to twelve months from beginning to end, the CEO\/owner typically takes his or her eye off the ball.\u00a0 Since the CEO\/owner is the key to all aspects of the business, his lack of attention to the business invariably affects sales, costs and profits.\u00a0 A potential buyer could become concerned if the business flattens out or falls off.<\/p>\n

Solution:\u00a0<\/em> For most CEOs\/owners, selling their company is one of the most dramatic and important phases in the company\u2019s history.\u00a0 This is no time to be overly cost conscious.\u00a0 The owner should retain, within reason, the best intermediary, transaction lawyer and other advisors to alleviate the pressure so that he or she can devote the time necessary for effectively running the business.<\/p>\n

Placing Too High a Price on the Business<\/strong><\/b>
\nObviously, many owners want to maximize the selling price on the company that has often been their life\u2019s work, or in fact, the life\u2019s work of their multi-generation family.\u00a0 The problem with an irrational and indiscriminate pricing of the business is that the mergers and acquisition market is sophisticated; professional acquirers will not be fooled.<\/p>\n

Solution:<\/em>\u00a0 By retaining an expert intermediary and\/or appraiser, an owner should be able to arrive at a price that is justifiable and defensible. If you set too high a price, you may end up with an undesirable buyer who fails to meet the purchase price payments and\/or destroys the desirable corporate culture that the seller has created.<\/p>\n

Breaching the Confidentiality of the Impending Sale<\/strong><\/b>
\nIn many situations, the selling process involves too many parties, and due to so many participants in the information loop, confidentiality is breached.\u00a0 It happens, perhaps more frequently than not.\u00a0 The results can change the course of the transaction and in some cases; the owner\u2014out of frustration\u2014calls off the deal.<\/p>\n

Solution:<\/em>\u00a0 Using intermediaries in a transaction certainly helps reduce a confidentiality breach. Working with only a few buyers at a time can also help eliminate a breach.\u00a0 Involving senior management can also prevent information leaks.<\/p>\n

Not Preparing for Sale Far Enough in Advance<\/strong><\/b>
\nMost business owners decide to sell their business somewhat impulsively.\u00a0 According to a survey of business sellers nationwide, the major reason for selling is boredom and burnout. Further down the list of reasons reported by survey respondents is retirement or lack of successor heirs.\u00a0 With these factors in mind, unless the owner takes several years of preparation, chances are the business will not be in top condition to sell.<\/p>\n

Solution:<\/em>\u00a0 Having well-prepared and well-documented financial statements for several years in advance of the company being sold is worth all the extra money, and then some.\u00a0\u00a0 Buying out minority stockholders, cleaning up the balance sheet, settling outstanding lawsuits and sprucing up the housekeeping are all-important.\u00a0 If the business is a \u201cone-man-band,\u201d then building management infrastructure will give the company value and credibility.<\/p>\n

Not Anticipating the Buyer\u2019s Request<\/strong><\/b>
\nA buyer usually has to obtain bank financing to complete the transaction.\u00a0 Therefore, he needs appraisals on the property, machinery and equipment, as well as other assets.\u00a0 If the owner is selling real estate, an environmental study is necessary.\u00a0 If a seller has been properly advised, he will realize that closing costs will amount to five to seven percent of the purchase price; i.e., $250,000-$350,000 for a $5 million transaction.\u00a0 These costs are well worth the expense, because the seller is more apt to receive a higher price if he can provide the buyer with all the necessary information to do a deal.<\/p>\n

Solution:\u00a0 <\/em>The owner should have appraisals completed before he tries to sell the business, but if the appraisals are more than two years old, they may have to be updated.
\nSeller Desiring To Retire After Business Is Sold<\/strong><\/b>
\nIt is a natural instinct for the burnt-out owner to take his cash and run.\u00a0 However, buyers are very concerned with the integration process after the sale is completed, as well as discovering whether or not the customer and vendor relationships are going to be easily transferable.<\/p>\n

Solution:\u00a0<\/em> If the owner were to become a director for one year after the company is sold, the chances are that the buyer would feel a lot more secure that the all-important integration would be smoother and the various relationships would be successfully transferable.<\/p>\n

Negotiating Every Item<\/strong><\/b>
\nBeing boss of one\u2019s own company for the past ten to twenty years will accustom one to having his or her own way… just about all the time.\u00a0 The potential buyer probably will have a similar set of expectations.<\/p>\n

Solution:<\/em>\u00a0 Decide ahead of the negotiation which are the very important items and which ones are not critical.\u00a0 In the ensuing negotiating process, the owner will have a better chance to \u201chorse trade\u201d knowing the negotiatiable and non-negotiable items.<\/p>\n

Allocating Too Much Time for Selling Process<\/strong><\/b>
\nOwners are often told that it will take six to twelve months to sell a company from the very beginning to the very end.\u00a0 For the up-front phase, when the seller must strategize, set a range of values, and identify potential buyers, etc., it is all right to take one\u2019s time.\u00a0 It is also acceptable for the buyer to take two or three months to close the deal after the Letter of Intent is signed by both parties.\u00a0 What is not acceptable is an extended delay during which the company is \u201cput in play\u201d (the time between identifying buyers, visiting the business and negotiating). This phase should not take more than three months.\u00a0 If it does, this means that the deal is dragging and is unlikely to close.\u00a0 The pressure on the owner becomes emotionally exhausting, and he tires of the process quickly.<\/p>\n

Solution:\u00a0<\/em> Again, the seller needs to have a professional orchestrate the process to keep the potential buyers on a time schedule, and move the offers along so the momentum is not lost.\u00a0 The merger and acquisition advisor or intermediary plays the role of coach, and the player (seller) either wins or loses the game depending on how well those two work together.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Many business owners are unfamiliar with the dynamics of selling a company, because they have never done so. There are numerous possible \u201cdeal breakers.\u201d\u00a0 Being aware of the following pitfalls and their remedies should help prevent the possibility of an aborted transaction. Neglecting the\u00a0 Running of Your Business A major reason companies with sales under […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[],"class_list":["post-560995","post","type-post","status-publish","format-standard","hentry","category-selling-a-business"],"blocksy_meta":[],"_links":{"self":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts\/560995","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/comments?post=560995"}],"version-history":[{"count":0,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts\/560995\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/media?parent=560995"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/categories?post=560995"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/tags?post=560995"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}