{"id":561035,"date":"2012-06-27T04:14:17","date_gmt":"2012-06-27T08:14:17","guid":{"rendered":"https:\/\/vrbbd.wpengine.com\/vrbbmadison\/prior-closing-red-flags-sellers-viewpoint\/"},"modified":"2022-01-31T12:44:17","modified_gmt":"2022-01-31T17:44:17","slug":"prior-closing-red-flags-sellers-viewpoint","status":"publish","type":"post","link":"https:\/\/www.vrbusinessbrokers.com\/vrbbmadison\/prior-closing-red-flags-sellers-viewpoint\/","title":{"rendered":"Prior to Closing — Red Flags from the Seller’s Viewpoint"},"content":{"rendered":"
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Buyers are expected to perform a thorough due diligence on both the business and the seller(s). However, many sellers don\u2019t do an extensive due diligence on the buyer(s). Deals do not always close; many are aborted in the very early stages, and others tank somewhere along the way to what was hoped\u00a0to be a successful closing. So, what happens that prevents a deal from closing, especially one that began with such positive signs? Obviously, in many cases, the buyer\u2019s due diligence turns up some items that were not revealed by the seller, and others that can\u2019t be resolved.\u00a0 Some of these items probably had early-sign red flags; other red flags occurred somewhere along the way, and unfortunately, the result was that there were pre-closing red flags.<\/p>\n

The Early-Sign Red Flags<\/strong><\/strong><\/p>\n

Sellers should seriously look at who the buyer is. This may be a corporate buyer who is just looking. On the other hand, some sellers may overlook a strong individual buyer for fear that he or she may be inexperienced in the acquisition process or might be too cautious. In both cases, the seller may want to ask questions such as the following: What companies have you already looked at? How much equity are you willing to commit? What experience do you have in what my firm does?<\/p>\n

Some sellers have that sixth sense that allows them to size up a prospective buyer. No one wants to waste time with someone who really isn\u2019t a buyer. The deeper a seller goes into the due diligence process with a potential buyer, the more red flags may appear. If there are too many, if the ones that get raised seem too difficult to resolve, or even if they might be resolved, if that sixth sense says \u201cno\u201d anyway, it is probably time to move on.<\/p>\n

Red Flags Along the Way<\/strong><\/strong><\/p>\n

Once the Offering Memorandum has been given to the potential buyer, the next stage of red flags may occur. For example, if your intermediary informs you that he or she has not heard from the prospect after receiving the memorandum, it could mean that the buyer prospect is not as interested as you might have thought. Also, if the next step involves a junior member of the prospective buyer\u2019s management rather than the CEO or COO, the red flag should go up. If the prospect, corporate or individual, refuses to provide, or delays providing, information showing their financial capability to do the deal, the red flag should be raised. One recommendation is to set up a social event, a dinner or extended lunch between you and the buyer prospect. Visiting at a social event allows the buyer and seller to get to know each other, establish a cultural understanding and build a working relationship. If this meeting goes badly, the red flag should go up, at least half-way.<\/p>\n

Red Flags Just Prior to Closing<\/strong><\/strong><\/p>\n

The Letter of Intent has been drafted and signed. One area that may cause several red flags to go up is if the buyer\u2019s attorney is inexperienced in the deal process, is overly aggressive, or just won\u2019t bend. This is such an important issue that if changes aren\u2019t made, the deal is probably in serious jeopardy of collapsing.\u00a0 The seller\u2019s attorney may be able to gather some insight on this matter.<\/p>\n

Both sides are taking some risks in any buy-sell process, but both sides should take their due diligence efforts seriously. If a deal has arrived at \u201ca just prior to closing\u201d status, it is certainly vital that both sides can resolve their red flag issues. It could be tragic if the deal has gone this far without serious red flags being raised.<\/p>\n

The whole purpose of recognizing the red flags is to try to resolve them before the deal \u201ccraters\u201d. A positive attitude by both sides is almost always the answer, and this attitude is best accomplished by the use of a professional intermediary who has been there, knows the red flags, and knows how to resolve them.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Buyers are expected to perform a thorough due diligence on both the business and the seller(s). However, many sellers don\u2019t do an extensive due diligence on the buyer(s). Deals do not always close; many are aborted in the very early stages, and others tank somewhere along the way to what was hoped\u00a0to be a successful […]<\/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-561035","post","type-post","status-publish","format-standard","hentry","category-selling-a-business"],"blocksy_meta":[],"_links":{"self":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbmadison\/wp-json\/wp\/v2\/posts\/561035","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbmadison\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbmadison\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbmadison\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbmadison\/wp-json\/wp\/v2\/comments?post=561035"}],"version-history":[{"count":0,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbmadison\/wp-json\/wp\/v2\/posts\/561035\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbmadison\/wp-json\/wp\/v2\/media?parent=561035"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbmadison\/wp-json\/wp\/v2\/categories?post=561035"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbmadison\/wp-json\/wp\/v2\/tags?post=561035"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}