- VERY CONFIDENTIAL TRANSACTION
- Seller’s biggest fear is that their employees, customers or suppliers might discover that their business is for sale.
- Public knowledge of a pending transaction would have a devastating effect on the ongoing operation of the business.
- Buyer must agree to a confidentiality agreement
- Buyer must indicate financial capability
- USUALLY A “HUMAN” REASON FOR SELLING
- Most buyers are suspicious “if it’s such a good business, then why are you selling”
- Very good businesses come on the market for “human” reasons
- Retirement, illness, burn-out, death in the family, relocation, divorce etc. etc.
- VIRTUALLY NO BANK FINANCING FOR BUSINESS ACQUISITIONS
- Banks are “asset lenders”
- Most of the value in a business is in the goodwill and cash flow
- Some SBA lending (stars have to be lined up perfectly)
- 85% of transactions are “seller financed”
- DOWN PAYMENT DRIVEN PROCESS
- Unlike bank financing, seller financing requires a substantial down payment (40% to 70%) of selling price. Buyer needs to identify their down payment capability (without any bank financing).
- Down payment capability will drive the size of business they are able to buy.
- RAPPORT DRIVEN PROCESS FOR A NUMBER OF REASONS
- Seller financing – most sellers do not want to finance the transaction. However, after seller has developed a comfort level with the buyer, they are much more open to financing.
- Emotional transaction for the seller- employees are like family, customers and suppliers are friends and family and the business is their baby, they do not want to sell to just anybody.
- Buyer must trust the seller – all statements by the seller cannot be verified. Our advice is that “if you do not have a good gut felling for the seller, do not buy the business”!!
- DIFFERENCES IN FINANCIAL REPORTING
- Public corporations and companies are always striving to improve profits
- Privately owned companies are always striving to lower profits, in order to minimize their tax liabilities
- Because the motivations are exactly opposite, they are playing by a different set of rules
