This is the fourth in a series of articles outlining the steps any business owner can take to maximize the value of his/her business when it comes time to sell. If you’d like to see previous articles in this series, visit our website at www.transworldma.com. If you’d like a copy of the complete list of value drives, e-mail me directly at firstname.lastname@example.org and request the Value Drivers list
10. For the Right Buyer, Be Prepared to Carry Some Seller Financing
Almost without exception, sellers would prefer to get 100% cash up front when they sell their business. In my experience, however, when a seller insists upon those terms, it tends to make both the buyer and the lender needlessly wary, sometimes to the point of negotiating a deeper discount to the selling price. Even before the last financial market meltdown, many SBA lenders were requiring the seller to carry at least 10% of the purchase price in a seller’s note. When you’re reasonably confident that you’ve met the right buyer for your business, you might seriously consider carrying some seller financing as a sure-fire way to lubricate any bank financing. After all, aren’t you more likely to come out ahead if you get 100% of your asking price with 90% cash at closing PLUS a 10% seller’s note, vs 100% cash at closing but only for 90% of your asking price?
11. Be Prepared to Hang a Lantern on Your Problem
No business is completely flawless, but the mistake many business owners make is assuming that if they hide their flaws perhaps the buyer won’t discover or notice them. This almost never happens, and when the buyer suspects that he/she was deliberately deceived, this can undo months of confidence and rapport building between the seller and the buyer. It frequently leads to an 11th hour reduction in the buyer’s offer, and not infrequently kills the whole deal.
In my experience, a much better approach is to take charge of the disclosure of these aspects of your business right up front, or at least very early in the process. Several advantages accrue to the seller when you do it this way. First, right out of the gate you establish a reputation of being a straight shooter who has nothing to hide. Second, you control the news, and have an opportunity to put it in perspective, and explain what steps you’re already taking to remedy/minimize it. For example, “When I started the company I sold and serviced most of our larger accounts myself. However, I recently hired a VP of Sales and started taking more time off. Now when our customers need something, they call him.”
12. Last, But Not Least, a Clean, Well-Ordered Workplace
This last point may seem trivial and unimportant, or it may seem so obvious as to go without saying; however, in my experience there’s no denying the positive impact that a clean, well ordered workplace has on a buyer. First, it creates/promotes an environment of pride, quality and efficiency. Second, it creates floor space/ counterspace/ storage space which translates to more capacity. Lastly, all other things being equal, what owner or employee wouldn’t prefer to come to work in a clean, well-ordered workplace?
If you know of a business owner who’s thinking of selling or buying a business and who might benefit from a complimentary, confidential, consultation, have them contact me at email@example.com
Mike Ertel, CBI, M&AMI, CM&AA
Managing Director, Broker
Transworld M&A Advisors
©2024 J. Michael Ertel, PA