We are often asked what makes a deal successful? We decided to share our thoughts and experiences to help buyers and sellers have a more successful deal making process.
This blog is for informational purposes only. This blog is not legal advice, and no attorney – client relationship is intended or formed by this blog. For more information or to contact an attorney at Foreman Law, please email info@goforemanlaw.com.
How to Understand the Buyer’s Priorities?
Kinds of Buyers – It is important to understand what type of buyer you are dealing with so you understand their interest and priorities.
- Financial buyer – This buyer is purchasing the business primarily as a financial asset.
- Strategic buyer – This buyer is purchasing the business because of the value it will create within their broader enterprise.
- Lifestyle buyer – This buyer is more interested in the business as a part of their lifestyle, more than the financial or strategic impact of the business. (Think of a retired executive looking for something to do, or for a buyer that views the business more as a “hobby”).
Buyer Value:
- Financial performance – If the dollars don’t make sense on the deal, the deal doesn’t make sense for any kind of buyer.
- Customer relationships– Important to understand how transferable those customer relationships are. As the seller, you need to take care of the current customers, employees and brand through the transition. As the buyer your current customers may be your only revenue source to start with.
- Supplier relationships– Understand how the key supplier relationships fit into the value of the company. Have a plan for which ones need to continue, and which ones will need to change.
- Intellectual Property – Understand how this impacts the brand and products of the business, and how to protect it through the transition.
Buyer Risks
- Market risk – Understand where the market is at and where it is headed, and how the business will do during this cycle. Some businesses do great in a recession, others do not. Knowing what type of business you are buying and what the market predictions are will help you plan.
- Known liabilities– It is important to ask a lot of questions. For example, a business may have a current lease that you will inherit.
- Unknown liabilities- Ask a lot of questions. You want to find anything that may affect the deal early on, and structure the deal to protect against unknown risks.
- Talent loss- Some employees will not like the new owner and will leave during the transition and can be difficult to replace, jeopardizing key client or supplier relationships, culture, knowledge, workplace dynamics, etc.
- Integration problems – Have a plan before closing for how to integrate the business after closing.
- Contractual rights and obligations – Some third party contractual rights such as customer or supplier termination rights, or debt acceleration can be triggered by a deal.
- Third Party rights – There may be some third-party rights that are critical to the business. Take time to understand them and what it takes to transfer those rights to the buyer.
Practical Tips for Buyer
- Take time to build a relationship early: More trust = More transparency = Better results
- Be clear about your interests and priorities. Ask for the same from the other party!
- Think about the buyer as a customer – make them happy!
- Happy buyer, happy wire.
- Get key risks on the table quickly.
- Be transparent – it builds trust and presents solutions.
Today’s Takeaway
Jacob – Just because it looks like a great business on the outside, doesn’t mean it is a great business on the inside.
Sam – If you are the seller, make sure you know what your buyer wants and treat them like a customer.
Wellness Tip!
Build trust. When you build trust in the deal process it can lower your stress and improve not only your experience but also your results.