The Key To Successfully Buy or Sell A Business

How To Increase The Chances Of A Business Sale Being Completed

I’ve been on a roll lately talking about business acquisition financing and many of the things that need to be considered to secure this hard to pin down form of financing.

Even if business financing is not required and the buyer can pay in cash, there is still no guarantee the deal will be finalized, although its going to be significantly easier to close without having to worry about securing capital.

So putting sources of funds aside, what is the key to closing the purchase and sale of the shares or assets of an existing business?

In all the deals I have been involved in or observed, I can easily come up with what I believe is the #1 key to success, and that is for the buyer and seller to jointly project manage the deal to its successful completion.

While that may seem a tad obvious to some, here is a better way to describe what I’m trying to say.

The Buyer And Seller Have To Become Blood Brothers.

There I said it.  As corny as that may sound, its the best way I can describe not only how important their interaction is with each other, but also the degree of comfort and trust that needs to develop between them during the buy/sell process.

Once the Letter of Intent is signed, they need to get out the hunting knives, draw out a little blood on their palms, and bond the deal.

What this ritual symbolizes is the understanding that has now been forged between the two parties which can be summarized as follows:

  • Unless there are unforeseen issues or disclosures that materially impact the deal, both sides are committed to do what it takes to complete the process.
  • Both the buyer and seller will retain the decision making power throughout the deal.
  • Both buyer and seller agree to discuss the outstanding issues on a regular basis and get involved where necessary to assure progress is being made.

Putting aside issues related to financing or unforeseen events and disclosures, deals fall apart because there are too many cooks brewing the stew.

Both sides will have advisers such as accountants, lawyers, financial advisers, business consultants, insurance agents, etc.  The larger the team, the less likely the deal will close without the buyer and seller staying engaged in the process.

Both sides will likely have to deal with a certain number of outside parties dictated by the composition of the deal.  This can include licensing agencies, bonding companies, appraisers, environmental consultants, suppliers, customers, employees, unions, and so on and so on.  As the number goes up, probability of success goes down.

In essence, the buyer and seller need to project manage their deal to completion.  Too often one or both sides do not appreciate what this can entail and the result is the deal can get away from them.

By definition, a project manager understands all the tasks required, how they inter relate, any interdependency among tasks or events, time lines, and so on.  Unfortunately for many deals, buyer, seller or both do not get very involved after the initial negotiations have been completed and if anything tend to step back and let the advisers take over.

Aside from project management, both sides also need to remain the decision makers.  Deals tend to have a certain amount of twists and turns as the details get pounded out.  With every curve in the road, there may require an adjustment or compromise on one side or the other.  Advisers can be very good at providing their opinions for issue resolution, but their advise may also end up killing the deal.

As decision makers, the buyer and seller need to receive all valid input regarding various issues and decide if any particular issue is something that can be worked through or an outright deal breaker.

A good example of this is during the drafting of purchase and sale agreements.  Each side’s lawyer’s job is to protect their client and get them the best deal possible.  When the lawyers from both sides are taking a win/lose approach, trying to out due the other side with clever clauses and demands, the deal tends to go back and forth until the eventual impasse is created.

Its at this point where the buyer and seller have to look at the areas of disagreement, consider all advise, and make their own decision as to how an issue or issues will be resolved.

I’ve seen sellers overly disconnected with the process through up their hands and say, “I’m not a lawyer, so if my lawyer says it has to be this way or that, I have to go along with what he says”, basically making the lawyer the decision maker.

A blood brother to the deal would seriously consider what their lawyer has to say, talk to the other side if appropriate as well as other advisers that could add value to the situation, and then make their own decision whether to proceed or not.

If buyer or seller agrees to proceed against an adviser’s advise, the adviser involved must then find a way to make the deal work (be a deal maker) in keeping with the wishes of the person paying their bill.

This is one of the more common points where deals blow up, but there can be many others.  As the number of people involved goes up, so do the levels of inaccuracies and misunderstandings that occur not to mention the lengthening of time lines.

And remember, most if not all the advisers are getting paid whether the deal gets done or not, so it truly is in both the buyer’s and seller’s interests to stay on top of what’s going on.

Obviously no amount of involvement can guarantee success, but the odds are greatly increased when the coordination of the overall project details are being well managed, the misunderstandings are kept to a minimum, and the advisers are directed to find ways to make the deal work versus blowing it up.