Get Ready, Get Set - Then Go !
Almost everyone has heard the saying history repeats itself. Although it is often considered a tired old adage, it does apply in the transfer of business ownership. There is normally a direct correlation between the extent of Seller preparation, and the probability of closing a transaction. This is also true for the Buyer.
Privately held businesses, purchased by an individual Buyer, can be sold with some form of deferred payment to the Seller. The deferral is usually in the form of an installment for part of the transaction. Examples of these are negotiated arrangements for a covenant not to compete or consulting agreement.
Whatever the deferral mechanism, they all create risk for the Seller, as to the probability of whether the promised and expected funds will actually be collected. The Seller's apprehension about receiving the Buyer's future payments, as scheduled, is often one of the primary reasons for a failed transaction.
The Buyer who becomes aware of these concerns early in the process has a much higher probability for completing a transaction. Serious Buyers who openly share information about their financial capacity and management experience are introduced to a Seller who is usually a great deal more receptive, because the intermediary has already received their profile, which indicates a qualified Buyer, who appears prepared to consummate a transaction.
Since the Buyer will (and should) be expecting extensive financial and other pertinent information on any business they are considering for purchase; they should definitely expect a motivated Seller to do the same by investigating a Buyer's financial status, employment history, and references. Also, if they have previously owned or purchased other businesses; their post acquisition performance, management style, current standing with lenders who funded a previous venture, and whether commitments were honored. This should come as no surprise. After all, if the Seller elects to accept a Buyer's deferral, like a bank, he is entitled to the same information required by any other lender.
Buyers, at the appropriate time, should conduct thorough, but reasonable due diligence on the business. The Buyer should have available a detailed personal financial statement, credit report, and resume for due diligence by the Seller.
Since many of the better businesses for sale sell quickly, unprepared Buyers often miss these opportunities. If they are deficient in advance preparation, there can be a lack of confidence needed to act decisively. Companies, as Buyers, are generally better prepared than individual Buyers seeking a certain type of business. The individual Buyer is at a disadvantage if they are not able to convince the Seller that they are qualified to promptly consummate a transaction.
Individual Buyers usually do not have well defined acquisition parameters or experience in negotiating with Sellers. The Buyer should develop a written acquisition outline for a business, in his targeted industry, that takes advantage of their education, experience and qualifications, determine the funds available for a down payment, and get pre-qualified for financing prior to meeting with Sellers.
For a well prepared Buyer, committed to becoming a business owner, purchasing a business within or close to the range defined in his outline, and commensurate with his qualifications; with the assistance of the intermediary in preparing a bona fide purchase offer and presenting it (by the intermediary) to the Seller for his acceptance: a transaction can close in as little as 90 days.
For the causal Buyer, who is investigating the possibility of business ownership, but is not adequately prepared, the process can drag-on for 18 to 24 months, if he can endure that long, or if it ever happens at all.
Keep in mind that the Buyer's personal information provided to Province Group is treated as strictly confidential. The consulting intermediary's primary goal is to facilitate a balanced transaction, which is equitable for both Buyer and Seller. Buyers who anticipate a Seller's due diligence are much more likely to achieve success in purchasing a business. The Buyer should reinforce to the Seller their capacity to promptly complete a transaction at the time of their offer to purchase.