Hooray, you have received and accepted an offer to buy your business. The months of anxiety are at an end. Alas, no.
Both buyer and seller now have several opportunities to place roadblocks in the way of the deal they both want – or blowing it up altogether. Over half of them do just that.
Two key statistics you should be aware of. You’ll see them often on these pages because most business owners just cannot conceive that the situation can be that way, but it is. These are not odds worth bucking against:
- 87 percent of small businesses will close without selling at all.
- 50 percent of purchase contracts fall through before closing.
When a buyer makes an initial offer, they have seen only what the seller has allowed them to see. Proceeding to close means writing a check for hundreds of thousands of dollars that may never be recoverable. It may result in assuming responsibility for a business that will continue to siphon off their money through complications that did not appear for many weeks after the closing day. Before taking that leap into the unknown, the buyer would like to know that the information they have received is somewhat related to reality. Assuming there’s no funny business going on, the seller’s job is to ease the buyer’s mind by providing documentation or access to the business in a way that reassures the buyer that what you said before is the truth and that you aren’t trying to hide anything.
As the seller, you’ll spend dozens of hours pulling together all sorts of customized reports to satisfy the buyer’s questions and take many more hours accompanying the buyer as they go around the facilities and look into filing cabinets and closets. Eventually you’ll probably end up exposing the staff to the buyer’s presence, although you’ll want to delay that until the contract contingencies have been cleared because that exposure opens up a whole new set of business risks.
This isn’t an easy time for the seller. You’re used to running your own show, and on most matters, the less said the better; now it seems like an endless series of demands for a tidal wave of information. Unfortunately, you’re over a barrel. That due diligence period also serves as a “get out of jail free” card for the buyer. In most contracts, the buyer can simply walk away from the deal without having to provide any reason at all, recouping their earnest money on the way out. You can try to control the scope and pace of the demands, and better yet, do it through a broker so they can be the “bad guy,” leaving your interactions with the buyer always positive. Otherwise, you have to grin and bear it through that due diligence period.
This is where a couple of key aspects of the Business Value Booster Method come into play:
- Reality: The seller is at a disadvantage in the selling process.
- Show-stopper: seller attitude
- Show-stopper: incomplete or inaccurate books and records
- Business boosters: transparency
Learn more about the Method on our main web pages (https://businessvaluebooster.com)
There’s some good news in all this for the seller. The byer is usually paying a professional (usually a CPA, but sometimes also an attorney and an industry specialist) to conduct the due diligence. Eventually, the buyer will get tired of paying $200 to $700 per hour for someone to tell them that everything seems to be consistent and accurate. A few days into due diligence, if there is “nothing to see here”, the buyer’s mind and checkbook want to move on to the next steps: negotiating the lease with the landlord and envisioning what they are going to do with the business after the handover date. At that point, they are thinking of your business as “their” business. Until then, it has been your business and their risky proposition. Don’t get in the way of letting that transition happen.