Timing: Is it the right time to buy or sell a business?
A major contributor to failed business transactions can be bad timing: either for the buyer or the seller. Experienced business brokers understand the importance of screening both parties to make sure that both are prepared to consummate the transaction—but despite that, deals can still fall apart at the last minute. At the least this can be very frustrating, but more often it means a financial cost is born by both parties: accounting fees, due diligence time, legal costs etc.
It’s incumbent upon both buyers and sellers to accurately assess themselves: their readiness to begin the process of buying and selling, their ability to complete due diligence and negotiations, and their understanding of their post close responsibilities and lifestyle. What are those specific issues?
Buyers:
- Are you ready to commit the time and energy to search for a business?
- Will you be willing and able to make a fair offer and negotiate in good faith?
- Are you willing to relocate or leave your current job?
- Do you need to sell your home or other asset to relocate or finance a business acquisition?
- Are there any family, health or other personal issues that may be a distraction or obstacle?
- Do you have the time and energy to devote to running a business?
- Are you ready to commit or pledge your assets to acquire a business and is that a risk your family can support?
These are critical questions that buyers must ask themselves before moving forward. Yes, searching for, and reviewing business opportunities can be exciting but there is a time and material cost to the seller or broker in responding to your requests. If you are not serious, or it’s not the right time, they could be spending their efforts on real buyers.
However, it’s not just buyers that have timing issues. Many buyers have been willing to close a deal only to have the seller pull out at the last minute! If the buyer has already given notice at their job, spent hours obtaining financing, prepared business plans and uprooted their family, then a reluctant or unwilling seller can have a devastating impact on the buyer. Sellers need to prepare themselves and fully understand the process of selling. A good broker or advisor should be able to prep the seller by being straightforward about key issues. Then sellers should ask themselves:
- Does the expected sale price meet your financial needs?
- Do you understand the tax implications of the sale and the expected proceeds?
- Are you willing to offer some seller financing to get to a closing?
- Do you understand the buyer will expect training and support for a reasonable time after the sale?
- Have you thought about what you will do after selling your business?
Buying or selling a business is a major undertaking. No matter what side of the table your on, you should make sure their aren’t any issues that could disrupt or cancel a potential sale.
