Steps for a Successful Closing
The closing is a pivotal moment in the history of a business as it marks the formal transfer of a business from one party to the next. Behind every successful closing is months of focus and hard work. Simply stated, a successful closing doesn’t just happen, but is instead the byproduct of extensive negotiations.
One key document to utilize in the closing process is the Purchase and Sales Agreement. There are four key aspects to this document.
- First are the terms of the agreement, which typically cover the price as well as detailed terms on how the business is to be paid. In the Purchase and Sales Agreement, you will find the status of any management that will be staying with the business.
- This document also should contain conditions and covenants which include non-competes as well as agreements on what to do and what not to do moving forward.
- Any good Purchase and Sales Agreement will, of course, include a description of the transaction. In other words, is the transaction a stock or asset sale?
- Finally, the agreement will cover representations and warranties. This is typically negotiated after the Letter of Intent is agreed upon. In short, the warranties will provide that everything is as it has been represented.
Now, let’s look at the four key steps that are a must before the sale of a business can close.
- Topping the list, is that the seller must provide satisfactory evidence that they have the full legal right to act on the behalf of the selling company. Additionally, the seller must show evidence that they have full legal authority to sell the business.
- Secondly, all representations and warranties must be in place. Importantly, this will also include clearly stated remedies that are available to the buyer in the case of a seller’s breach.
- Third, the buyer’s representative should have completed the due diligence process. A key part of the due diligence process is that any claims and representations made by the seller have been clearly substantiated and addressed.
- Last, but certainly not least, necessary financing should have been secured. A critical part of the process is that all of the proper paperwork, as well as the appropriate liens, should be in place, as no funds can be released until these conditions have been met.
It is also important to note that there are two significant elements of closing that will take place simultaneously.
- The first is the corporate closing which is the actual transfer of the corporate stock or assets. This step is based on the provisions set forth in the Purchase and Sales Agreement. All the paperwork that was carefully laid out in the Purchase and Sales Agreement has been completed.
- The second major element is the financial closing. In the financial closing all the paperwork, as well as the legal documents needed to provide funding have successfully been executed.
While there is no doubt that closing is a joyous time, it is also vital to remember that the period leading up to closing is the time to have a laser-like focus. This is the most important time to avoid mistakes. Working with a business broker or M&A advisor can dramatically reduce your chances of experiencing mistakes during the all-important closing process.
Copyright: Business Brokerage Press, Inc.
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Lack of Experience Can Be a True Deal Killer
Most business owners excel at running their businesses but often lack the expertise needed to sell them successfully. This is where a seasoned brokerage professional can be invaluable.Many business owners try to save money by entrusting the sale of their business to someone with an MBA but without direct experience in business transactions. Unfortunately, this decision can lead to poor outcomes.Consider the example of a business owner who asked his nephew, a recent MBA graduate, to oversee the sale of his multi-location retail operation. The idea was to save money, but the nephew’s inexperience proved costly.
Key Issues Faced by the Business Owner and His Nephew
Missing Legal ArrangementsOne of the first issues was the lack of confidentiality agreements. This oversight allowed competitors, key employees, clients, customers, and suppliers to learn that the business was for sale, potentially harming the business’s value and operations. Additionally, the nephew used the company’s attorney, who lacked experience in business transactions, further complicating the sale.Incomplete DocumentationThe nephew prepared a Confidential Business Review (CBR) or Confidential Information Summary (CIM) but failed to include essential financial details, such as owner withdrawals, projections, and ratios. This lack of comprehensive information could lower bids or deter potential buyers. The business owner and nephew also neglected to involve the CFO in the process, which is crucial for due diligence.Failure to Properly Screen CandidatesThe nephew did not understand the importance of confidentiality agreements, due diligence, or the screening process. He failed to interview prospective buyers to assess their seriousness and financial capability, wasting valuable time and spreading the word that the business was for sale.
The Importance of Professional Assistance
Selling a business is often the most significant financial decision in a business owner’s life. Therefore, it is critical to seek experienced and competent assistance. An experienced business broker or M&A advisor understands the complexities of selling a business. While a well-meaning family member might want to help, without years of experience, they are not the right person for the job.
Benefits of Hiring a Professional Business Broker
- Confidentiality: Professional brokers ensure confidentiality, protecting your business from potential harm due to premature disclosure.
- Proper Valuation and Pricing: Brokers accurately value your business, ensuring it is competitively priced to attract serious buyers.
- Access to a Network of Buyers: Experienced brokers have extensive networks, increasing the chances of finding the right buyer.
- Marketing and Negotiation Expertise: Brokers know how to market your business effectively and negotiate the best terms.
- Focus on Business Operations: Hiring a broker allows you to focus on running your business while they handle the sale process.
- Navigating Legal and Financial Complexities: Brokers manage the legal and financial aspects of the sale, ensuring a smooth transaction.
In conclusion, while it might seem cost-effective to handle the sale of your business internally, the potential pitfalls and complexities make it essential to hire a seasoned business broker. Their expertise can make a significant difference in achieving a successful and profitable sale.For more information on how to successfully sell your business, visit Indiana Equity Brokers to learn about their proven process and free business valuation services. Additionally, discover the importance of confidentiality in business sales on their Confidentiality in Selling Your Business page.
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What to Consider Before Handing Your Business Over to the Next Generation
No business owner will be able to stay with their business indefinitely. For this reason, you will either have to eventually sell or hand your business off to the next generation. Let’s take a closer look at the concept of handing a business over to a family member and how you can make sure that the business is in optimal shape when the time comes.
If you want your business to be prepared for succession and the next generation, you’ll want to repair any key problems before handing it over. Some experts advise putting your focus on evolving the business. One key recommendation is to focus on sales, marketing and distribution in the coming years, so that troublesome issues, such as sales plateaus, are properly addressed and hopefully circumvented.
Also, you’ll want to consider boosting communication with key employees so that current management understands where all the employees stand. Skilled and motivated employees are rare commodities, and they are absolutely critical to the future success of any business. For any business owner considering handing over their business to their children, employee skill level, motivation and commitment will be essential to the success of the business during a potential transition period.
Some people see their business as a form of job creation for their children, instead of being what it truly is, a business. For a wide variety of reasons, it may not be feasible for your descendants and relatives to take over the business. They may not be capable of the demands or they may simply have no interest. But if you are able to successfully pass it down, you’ll want to optimize their chances for success.
Just as buying or selling a business involves preparation, the same holds true for handing the baton to the next generation. There is no replacement for advance planning. The sooner that you begin thinking about, and taking tangible steps to prepare for the next generation taking over the reins, the better off everyone will be.
Copyright: Business Brokerage Press, Inc.
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What Can Negatively Impact Your Chances of a Sale?
The last thing that any business owner wants is for a sale to fall through over something that was completely preventable. The good news is that with proper preparation and planning, these mistakes can be minimized or avoided altogether.
Workforce Issues
One of the top mistakes that business owners can make is allowing for an unstable workforce. It should come as no surprise that prospective buyers want to buy a business that produces consistent results. A key part of business stability resides in a stable workforce. Having a great product or service and then knowing that you have good dependable people to deliver those goods and services is essential. Buyers will be looking for this when they make their buying decisions.
Faulty Recordkeeping
You can be very certain that any serious buyer will want to examine your books for the last several years. It is only prudent to expect that a prospective buyer will look at every part of your financials, including everything from your operating costs to your sales history. Proper recordkeeping will help convey the message that you are a responsible business owner, and this in turn, will increase the perceived value of your business.
Delayed Improvements
Delaying key investments and improvements may sound good for the foreseeable future, but it can be costly in the long run. It also points to a lack of vision and planning on the part of business owners. If you’d like to maintain your business’ value for when it is time to sell, you must constantly invest in your future. This will help your business thrive today and grow in the future.
Another mistake that business owners can make is to fail to innovate. In a sense, this failure often goes hand-in-hand with a failure to invest in the business. A business that is not innovative is one that may be seen as a business that is not well positioned for the future.
Of course, every industry is different. For this reason, it is important that business owners evaluate their business, the competition, and what opportunities exist if they embrace a constant stream of innovation. It is key to note that innovation is not always about making grandiose and costly moves. Quite often, innovation is the result of adopting a different mindset and finding small ways to boost customer or client satisfaction and reach new customers.
Failing to Work with Professionals
Business brokers and M&A advisors understand all of these variables. They understand the mistakes that business owners can make when preparing to sell their business. Just as importantly, they understand the steps necessary to circumvent them. Working with a brokerage professional well before putting your business up for sale will dramatically increase your odds of a successful outcome. You’ll also want a solid team of other professionals including an experienced attorney and accountant.
Copyright: Business Brokerage Press, Inc.
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What You Need to Know About the Confidential Business Review
There are many different strategies that will likely be deployed during the sales process. In this article, we’ll focus on how to utilize the Confidential Business Review CBR and/or CIM. Frequently, the Confidential Business Review is also referred to as a Confidential Information Memorandum. But no matter what name is used, the CBR/CIM provides a pathway for obtaining the highest selling price possible.
It is important to understand that the CBR/CIM must be factual at its core. Yet simultaneously, the CBR/CIM can function as a promotional and sales tool. The CBR/CIM can be integrated with an Executive Summary in the document, which allows prospective buyers a way to learn more about the business.
Through the Executive Summary section of the CBR/CIM, prospective buyers can quickly gain insight into the key highlights of a given company. The outline should include key factors, such as an overview of the ownership and management structure as well as a description of both the business and financial highlights. The company’s products and services should also be covered in detail. Importantly, the CBR/CIM should include why the business is for sale and some information about the market.
A well-constructed Executive Summary helps to both guide and motivate a prospective buyer so that they become motivated to learn more and take action. The Executive Summary should grab hold of anyone who reads the high points and illuminate why your business is valuable.
Many variables can be included in the CBR/CIM. Everything from the history of your company and what it does for the markets it serves and the products it creates can all be found in this document. Other topics such as the current state of competition, your key customers, management, your growth strategies, various financial information and other important variables can all be included in a CBR/CIM.
The creation of a coherent and persuasive CBR/CIM, one that motivates a prospective buyer or their representative to take action, is an artform. Much like it is prudent to invest both time and resources to the creation of an excellent confidentiality agreement, the same holds true for the creation of a CBR/CIM.
Business Brokers and M&A Advisors are experts in the creation of key sales documents, such as the CBR/CIM. One of the quickest and easiest ways to create an excellent CBR/CIM is to work with an experienced Business Broker as they understand exactly what should be in an offering memorandum. This document may very well be the first important contact point with a prospective buyer. For this reason, it should be designed to work to your benefit in a variety of ways.
Copyright: Business Brokerage Press, Inc.
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