Why Deal Terms Are Usually More Important Than The Purchase Price

When negotiating the purchase price of a business, a buyer would be well advised to avoid getting into the specific deal terms too early in the negotiations. The reason being is that a buyer needs to get the seller fully committed to the deal and mentally spending their proceeds in order to negotiate the best possible deal terms.

But what are the terms separate from the actual sale price you may ask? There are countless aspects to the deal separate from the legal ones with the most important ones being the financing, seller training periods and compensation and earnout structures.

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What’s More Important, Assets Or Income?

While this may sound like an odd question, rest assured you will encounter arguments for both answers while you’re in the process to buy a business. I’m sure you’ve heard the saying, “There’s no such thing as a dumb question.” – that may be true, but there are certainly dumb answers.

Before we get into both sides of the question, imagine this scenario…

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The Right Approach To Find The Right Business To Buy

There is an industry understanding that only around one third to fifty percent of all businesses listed for sale actually get sold. This figure is not one that business brokers will readily admit since they would like to sell all of their listings, and I surely don’t blame them; that’s how they pay their bills.

It’s important for prospective buyers to understand this statistic specifically to adopt the strategy that they may have to look at a lot of potential businesses in order to find the right one.

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The First Thing We Do, Let’s Kill All The Lawyers

This quote is from Shakespeare’s Henry VI. However, it’s not what most people think. The idea was that by killing the lawyers, there wouldn’t be anyone in place stop a contemplated revolution or to maintain and restore order. The same is true for business deals. Lawyers have a role – it’s to maintain order, by which I mean, to insure the deal documents and conditions are done in an orderly and legal manner. That’s it – that’s all.

Get two things straight: One, you need a lawyer and two, lawyers are not negotiators. They are scribes. Their role is STRICTLY to reduce to writing what the parties have agreed to and, to do so in an orderly manner that is legally binding. Of course, you want them to do so in a way that best represents your interests.

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A Key Question To Ask Every Seller Of A Business for Sale

There are many questions that every business buyer needs to ask every seller. Unfortunately, many buyers get bogged down with the black and white aspects of a business (i.e. financials) but in reality, quite often, the more important issues are the gray areas.

Don’t get me wrong; financials are key, but numbers don’t lie – people do. Since most buyers will actually purchase a business outside of an industry they are familiar with, it is crucial to get a true understanding of how the business works and what it will take for you to be successful.

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Seller Financing Is How Businesses Get Sold

How wonderful it would be if the banks welcomed business buyers with open arms and an open vault. Sure, all those feel good TV ads from the banking industry like to convey a story of how customer friendly they are – just walk right on in and they’ll lend you the money to realize your dreams.

Guess what? It won’t happen. Never has, never will.

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There’s A Ton Of Incorrect Information About Buying A Business

I try to read every article about business buying and selling and specifically in regional markets across the globe. If one were to believe the contents of each one, you could go crazy. I have read ones that state: Valuations should be done on a certain basis and another article suggests an entirely different approach. One suggests that business sales are up and the next that sales are down; one states banks are financing, and then banks are not lending. There are more buyers, there are less buyers. And on and on the list goes.

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