Having a letter of intent signed by both the buyer and the seller can be a very good feeling. Everything can seem as though it is moving along just fine, but the due diligence process must still be completed. It is during due diligence that a seller decides whether he or she is going to finalize the deal. Much depends on what is discovered during this important process, so remember the deal isn’t done until it is truly finalized.

In his book, The Art of M&A, Stanley Forster Reed noted that the purpose of due diligence is to “Assess the benefits and liabilities of a proposed acquisition by inquiring into all relevant aspects of the past, present and predictable future of the business to be purchased.”

Summed up another way, due diligence is quite comprehensive. It probably comes as no surprise that this is when deals often fall apart. Before diving in, it is critically important that you meet with such key people as appraisers, accountants, lawyers, a marketing team and other key people.

Let’s take a look at some of the main items that both buyers and sellers should have on their respective checklists.

Industry Structure

You should determine the percentage of sales by product line. Additionally, take the time to review pricing policies, product warranties and check against industry guidelines.

Human Resources

Review your key people and determine what kind of employee turnover is likely.

Manufacturing

If your business is involved in manufacturing then every aspect of the manufacturing process must be evaluated. Is the facility efficient? How old is the equipment? What is the equipment worth? Who are the key suppliers? How reliable will those suppliers be in the future?

Trademarks, Patents and Copyrights

Trademarks, patents and copyrights are intangible assets and it is important to know if those assets will be transferred. Intangible assets can be the key assets of a business.

Operations

Operations is key, so you’ll want to review all current financial statements and compare those statements to the budget. You’ll also want to check all incoming sales and at the same time analyze both the backlog and the prospects for future sales.

Environmental Issues

Environmental issues are often overlooked, but they can be very problematic. Issues such as lead paint and asbestos as well as ground and water contamination can all lead to time-consuming and costly fixes.

Marketing

Have a list of major customers ready. You’ll want to have a sales breakdown by region and country as well. If possible, you’ll want to compare your company’s market share with that of the competition.

The Balance Sheet

Accounts receivable will want to check for who is paying and who isn’t. If there is bad debt, it is vital to find that debt. Inventory should also be checked for work-in-progress as well as finished goods. Non-usable inventory, the policy for returns and the policy for write-offs should all be documented.

Finally, when buying or selling a business, it is vital that you understand what is for sale, what is not for sale and what is included whether it is machinery or intangible assets such as intellectual property. Understanding the barriers to entry, the company’s competitive advantage and what key agreements with employees and suppliers are already in place, will help ensure a smooth and stable transition. There are many important questions that must be answered during the due diligence process. Working closely with a business broker helps to ensure that none of these vital questions are overlooked.

Copyright: Business Brokerage Press, Inc.

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When it comes to selling a business, sellers simply must pay attention to red flags. Problems can always pop up, and that’s why they need to keep their eyes open.

Rarely does a “white knight” ride in and rescue a business with no questions asked. And if this were to happen, you should be asking, “Why?” Until a deal is officially inked, sellers need to evaluate every aspect of a transaction to make sure something isn’t happening that could wreck the deal.

Common Red Flags to Watch For

One example would be having a company express interest in your business but you are never able to directly contact key players, such as the President or CEO. The reason that this is a red flag is that it indicates that the interest level may not be as great as you initially hoped.

A second red flag example would be an individual buyer, with no experience in acquisitions or experience in your industry, looking to buy your business. The reason that this second example could prove problematic, is that even if the inexperienced buyer is enthusiastic as the deal progresses, he or she may become nervous upon learning what a deal would actually entail. In other words, the specifics and the reality of owning a business, or owning a business in your industry, could come as a shock to an inexperienced buyer.

Both of these examples above are examples of early-stage red flags. But what about issues that pop up at later stages? The simple fact is that red flags can come at any stage of the selling process.

A good example of a middle-stage red flag is when a seller is denied access to the buyer’s financial statements, which is of course essential to verify that the seller is able to actually make the acquisition. A final-stage red flag example is an apparent loss of momentum, as the buying and selling process can be a long one.

Business Sellers Need to Protect Their Assets

Sellers are usually very busy and don’t have time to waste; this is doubly true for owner/operators of businesses, as the time they invest with a prospective buyer is time that could be spent doing something else.

All too often, businesses begin to run into trouble when they place their business on the market. If this trouble negatively impacts the bottom line, then the business can become more difficult to sell and the final sale price will likely be lower.

That’s why it is so essential that sellers protect themselves from buyers that are not truly interested or are simply not a good fit. Working with a business broker is an easy and highly effective way for sellers to protect themselves from buyers that are simply not the right fit. A broker helps to “weed out” unfit candidates.

While red flags are never good, that doesn’t mean that a red flag means a deal is a definitely at an end. Especially with the guidance of an experienced business broker, many of these issues can be overcome.

In the end, if you, either as a buyer or seller, suspect that there is a problem, then you should take action. The problem will not simply go away. The single best way to deal with a red flag is to tackle it head on as soon as you recognize it.

Copyright: Business Brokerage Press, Inc.

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The simple fact is that family businesses are different. After all, a family business means working with family and all the good and bad that comes with it.

While an estimated 80% to 90% of all businesses are family owned, relatively few are properly planning for what happens when it comes time to sell. According to one study, a whopping 72% of family businesses lack a developed succession plan which is, of course, a recipe for confusion and potentially disaster. Additionally, there are many complicating factors, for example, studies indicate that 40% to 60% of owners of family businesses want the business to remain in the family, but only 40% of businesses are passed to a second generation and a mere 10% are passed down to a third generation.

Let’s turn our attention to a few of the key points that family business owners should consider when selling a business.

1. Confidentiality should be placed at the top of your “to do” list. When it comes to selling a family business, it is vital that confidential is strictly observed.
2. Remember that it may be necessary to lower your asking price if maintaining the jobs of family members is a key concern for you.
3. Family members who stay on after the sale of the business must realize that they will no longer be in charge. In other words, after the sale of the business the power dynamic will be radically different, meaning that family members will now have to answer to new management, outside investors and an outside board of directors.
4. Family members will want to appoint a single family member to speak for them in the negotiation process. A failure to appoint a family member could lead to confusion, poor decision making and ultimately the destruction of deals.
5. When hiring a team to help you with selling your business, it is critical that your lawyer, accountant and business broker are all experienced and proven.
6. Don’t hold meetings with potential buyers on-site.
7. Every family member, regardless of whether they are an employee or an investor, must be in agreement regarding the sale of the company. Again, one of your primary goals is to avoid confusion.
8. Family employees and family investors must be in agreement regarding the sale price or there could be problems.

Working with an experienced business broker is a savvy move, especially when it comes to selling a family business. Business brokers know what it takes to make deals happen. Being able to point to a business brokers’ past success will help reduce family member resistance to adopting the strategies necessary to successfully sell a business.

Copyright: Business Brokerage Press, Inc.

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Many experts agree that the best time to prepare to sell your business is when you start your business. That may sound extreme. However, few business owners reach that level of preparedness. A simple fact of life and owning a business is that most sales are event-driven. Factors such as problems with a partnership, health issues, burnout or even divorce can drive a business owner to sell.

Once you’ve made the decision to sell, it is essential that you realize one key fact. Unexpected events and factors will always rise to the surface. In this article, we’ll explore four key questions that you’ll need to address before selling your business.

1. What is the Value of Your Time?

Meeting with prospective buyers can be a serious time sponge. One of the key benefits of working with a business broker is that a broker can take some of the pressure off of you. They can interact with buyers on your behalf.

A large percentage of business owners are also deeply involved in the day-to-day operation of the business. Business owners don’t have time to meet with every interested party or take the time to weed out the qualified prospects from the window shoppers.

2. What Do You Want Your Level of Involvement to Be?

Working with prospective buyers is obviously time consuming, but so is knowing every detail about a prospective buyer’s visit. A seasoned business broker can sift through what information is essential and what information is extraneous. In this way, you only hear about what is relevant and can skip the rest.

It is important for business owners to keep in mind that buyers expect that the business will continue to run successfully not just during the sales process but through closing as well. For this reason, you’ll want to stay as focused on the day-to-day operations of your business as possible; after all, if a deal falls through the last thing you want is to have a dip in revenue.

3. Are There Other Decision Makers?

Determining whether or not there are any other decision makers is a very smart move. Part-owners and silent partners will have to be addressed when it comes time to sell.

4. Just How Important is Confidentiality to You?

Confidentiality is important when it comes to selling your business. The more active your selling process, the greater the chances are that you’ll have a leak if you’re not extremely careful. Leaks unfortunately occur more than you might think.

How much will this issue negatively impact your business if it does occur? You should have a “leak plan” ready to go. In your plan, you should have in place what steps you should take to minimize the damage caused by the leak. Being ready to deal with key customers, employees and distributors is the cornerstone of dealing with any leak. Business brokers are experts at helping clients maintain confidentiality. This can save you a great deal of time and effort on many fronts.

By answering these four questions fully, you will save yourself time, stress and effort. Selling a business is a complex process. But with the right planning you can minimize your effort and maximize your results.

Copyright: Business Brokerage Press, Inc.

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The simple fact is that without employees, you don’t have a business. Given the tremendous importance of your employees, it is important to step back and reflect on the value associated with keeping those employees happy.

There is a direct relationship between happy employees and happy customers. A happy employee takes steps to ensure that your customers are satisfied. This approach in turn leads to a higher level of customer retention and helps in attracting new customers. On the flip side, unhappy employees can be quite dangerous to your company’s bottom line.

The hiring process is a key process for the health of your business and should never be overlooked or treated as a secondary process within your business. Cultivating happy employees begins at this point. Hiring can and will either make or break your business.

Offering great pay and benefits is only one important factor in keeping employees happy. A more overlooked important factor is to appreciate the contributions that employees make. If employees feel as though they are being overlooked or not appreciated, their overall happiness level will falter. Many owners unnaturally expect their employees to have the same dedication to their business that they do, and this can lead to problems.

Your employees realize that they don’t own the business. As a result, most are only willing to invest so much of themselves, their talents and their abilities into your business. Taking steps to keep your employees engaged, such as showcasing that their talents are appreciated, will help keep employees invested and happy. Research has also revealed feeling happy will make them more productive. A few years ago, Fortune Magazine wrote an article that cited a UK study connecting employee happiness and productivity. It’s definitely worth a look.

Being a positive owner is a gigantic step in the right direction where cultivating happy employees is concerned. Being a good role model is at the heart of having happy employees. It is vital that you reward people with praise and bonuses for jobs well done and fire employees that are consistently negative or failing to perform their respective duties. Special touches, such as giving employees their birthdays off, can go a long way towards cultivating the kind of climate that leads to increased satisfactions. And don’t forget, your team’s satisfaction will increase your bottom line.

When it comes time to sell a business, you can be sure that prospective buyers will be interested in your level of profits. In this way, the investment you make in the happiness of your employees can be returned many fold.

Copyright: Business Brokerage Press, Inc.

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