The business acquisition process requires careful negotiation of several details. Read on for some tips on negotiating the deal.
If you know anyone who is thinking about buying or selling a business, we would be glad to assist them. We specialize in IT and technical service companies, and we work with many other types of businesses. Your referrals are appreciated.
Sincerely, 
John Austin & Bob Dale
Austin Dale Group
512-327-0427
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Negotiating the Deal
Seller Financing
The seller finances the majority of small business acquisitions. Buyers with good credit should supply a copy of their credit report with the offer. The seller may be impressed enough to accept a lower-than-desired down payment.
Down Payment vs. Price
Since a seller shouldn't be expected to cut both the down payment and the full price, both buyer and seller should decide which is more important to them. A buyer attempting to buy the business with as little cash as possible shouldn't try to substantially lower the full price. On the other hand, if cash is not a problem for a buyer (this is seldom the case), he or she can attempt to reduce the full price significantly.
Debt Structure
Both buyer and seller should be concerned that the buyer is able to afford the debt structure. Neither should accept a transaction that obligates the buyer to make payments to the seller that will not allow the buyer to build the business and still provide a living for his or her family.
Don't Burn Bridges
During negotiations, both parties should focus on building and maintaining a good relationship with each other. The seller will be teaching the buyer the business and acting as a consultant, at least for a while. It's all right to negotiate on areas that are important, but buyers and sellers shouldn't negotiate over a detail that really isn't key. Many sales fall apart because either the buyer or the seller becomes stubborn, usually over some minor detail, and refuses to bend.
Using an Intermediary
A business broker or M&A intermediary can offer valuable assistance throughout the entire business acquisition process. Intermediaries can't provide legal advice, but their deal-making knowledge and experience can greatly assist in ensuring a win-win transaction.
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Valuing a Business: An Owner's Litmus Test When business owners ask the familiar question - "What is my business worth?" - they might find the best answer in the mirror. Of course, there are always the financials to consider, but numbers fail to tell the whole story. Goodwill is important, but value cannot be based on it alone. The true value of a business can best be determined by looking at the person at the helm - the business owner.
Owners of a business will want to ask some hard questions. "How do I measure up when it comes to attitude, management strategy, customer-service smarts, and community relations?"
Another crucial question is, "Do I think positive?" Is an owner so focused on the bottom line that he or she forgets to look at the clouds from time to time? Owning a business is part of the American dream for many families, yet many business owners allow themselves to get bogged down by the harshest sort of reality. They neglect to keep the dream alive, to think positively about the business today and tomorrow. In our technological world, it's easy to forget the importance of having the right attitude. If business owners aren't positive, how can they expect customers and employees -- and at some point, prospective buyers -- to be positive? The owner who sees only the downside of the business will probably not see a turnaround. Of course, there are always the real-life factors: banks that won't lend, customers who stop buying, products and services that become obsolete. However, if these problems didn't exist, the negative-thinkers would find a different set of problems to worry about.
If an owner feels the need for some positive polish, he or she should begin with just that. Spiffing up the place of business with fresh paint, clean carpets, well-stocked shelves, cheerful plants and artwork, just to name a few suggestions, will speak volumes about the state of the business. |
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"Free Webinar: "10 Steps to Prepare and Sell Your Business"
Did you know that over half of small and mid-sized businesses never sell when they are put on the market? Selling a business is not like selling a piece of real estate or any other type of asset. Join us at a free webinar for business owners who are thinking of selling their business and need to know how to prepare and follow-through to be successful and maximize their proceeds. Even if you're just starting to think about it, it's more crucial than ever for owners to plan ahead to optimize the value of their company, and take advantage of market conditions and timing to get the most out of selling their business.
Target Audience: business owners and executives of small to mid-sized companies
Date: August 25, 2011 (Thursday)
Time: 10 AM to 11 AM (Central)
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IT Private Equity Deal Flow
The information technology industry represented 12% of the total Q1-2011 U.S. private equity deals by number of completed transactions, making it the third most active industry. 45 middle market deals were completed with an average value of $154M compared to 52 transactions in Q1-2010 with an average value of $42M. Software continued to be the most active sector, followed by IT services. That's the highest percentage of total IT deals that IT services has achieved in 10 years. Cloud computing and software-as-a-service (SaaS) are the hottest areas for investors. (Source: RSM McGladrey) |
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Buying a Business in a Recession, part 3 in a series
Adapted from an article by Matt Joyner, a partner in the law firm of Bishop, Dulaney & Joyner, P.A. in Charlotte, NC.
Buying a business is a major undertaking in the best of times. In the current weak recovery from a recession, it becomes an even more complicated proposition. There are four important considerations when buying a business in a recession or weak recovery period:
#2 - Public record search on the business - In any business acquisition the prospective buyer should conduct a thorough search of the public records with regard to the business to determine whether there are any liens encumbering the seller's assets. If so, the buyer would be at risk of paying the seller once for the assets and then having to pay the party holding the lien a second time for the same assets. In a recession the likelihood of liens on the seller's assets increases because the likelihood of the seller being in debt increases. It's essential that the liens are discovered and that the transaction is structured to remove them from the purchased assets. Similarly, the seller should conduct a public record search on the buyer's business, if there is one. |
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