If Problems Arise During The Due Diligence Period

The title of this post is a bit misleading; it shouldn’t be “if” problems arise but rather “when” they do. I can almost guarantee that you will uncover certain issues during due diligence that were not previously tabled. These can be outright misrepresentations by the seller (i.e. customer contracts that are in jeopardy), or other items you uncover in your research that give you cause for concern about the future viability of the business.

The one thing you do not want to do is run to the seller or broker every time there’s a problem expecting a deal concession. Doing so will cause the seller to not recognize the severity of any single issue and will likely give the impression that the buyer is looking for every excuse to either reduce the price or not do the deal at all.

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Negotiating When Buying A Business For Sale

It’s important to gauge the type of mentality a seller has about negotiating before you start the actual negotiations when buying a business for sale. Similarly, a buyer has to understand their own general strategy regarding negotiations. For a seller, the very nature of their business will dictate how they are going to approach the negotiation stage. For example, in businesses where the seller is actively involved in purchasing inventory for the company, or in ones that compete mainly on price you can almost guarantee that the seller is someone who expects prices and terms to be negotiated back and forth.

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How Long Should The Seller Stay On After You Buy A Business?

Keeping the seller onboard for a reasonable and effective transition period can be the difference between success and failure for a business buyer to be certain the business gets off to a smooth start under their ownership. There are of course potential issues that can arise depending upon how long the former owner stays on, but the question always comes up as to how long they should stay.

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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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