Strong Selling Points: Let Your Strengths Work for You
“Independent business owner” is a phrase with two meanings. Of course, it means being the owner of an independent business. But another way to look at “independent business owner” is to let this phrase define the very personality of the person at the helm. Independent. Confident. Self-assured. Strong-willed. These are vital entrepreneurial attributes, but, ironically, they can sometimes work against the business owner when it comes time to sell.
Since business owners are the type who know about selling — either products or services– and about making deals — haven’t they had to cope with suppliers, customers, and competitors throughout their business careers? — it’s not surprising that owners approach selling their businesses with these tried-and-true tactics and ideas. Sellers who have spent years building a business are often unaware of how completely different the process of selling a business is.
Savvy sellers, realizing the importance of a selling approach equal to this very important task, will depend on the guidance of a business intermediary. With professional guidance, sellers can benefit from their personal strengths instead of letting them get in the way of the selling process. The following “strong” selling points are signposts on the road leading to a successful transaction.
Price Your Business To Sell
Sellers are good “business people;” they naturally are after the best possible price for their business. Realistic pricing is perhaps the most important factor in selling from a point of strength. Understanding the marketplace, up-to-the-minute and not some high mark just past or in the possible future, is key.
The pricing of a business, different from the simpler means of valuing based on goods or services, depends on industry-tested valuation techniques, with intangibles incorporated to ensure that the business will not be underpriced. The price of a business is arrived at by a variety of factors, one of the chief of which is the intensity of a buyers interest in a particular business.
Know Your Buyer
The seller, although good at “psyching out” customers and vendors, may not be as adept at sizing up potential buyers. Some buyers are professional window-shoppers; talking a good game but never really ready to play. There are also the buyers who would play ball — if they only knew where the action was! First locating and then qualifying buyers is a key function of business brokers. They will use computerized data bases, professional associations and other networks nationally and internationally — all to increase the chances of selling a business at top value.
In addition, the business broker will determine the right buyer for the right business, focusing on those prospects who are financially qualified as well as genuinely (or potentially) interested in the business for sale. As part of qualifying buyers, to take the “fear” out of the likely need for seller financing, the business broker will assess the ability of a particular buyer to run a business successfully. This invaluable work by the broker not only locates the best buyers, it also frees the seller to concentrate on his role in the selling process.
Prepare Your Business for Sale
In addition to the obvious need for the business to appear clean and cared-for, there are important steps the seller must take in advance of putting the business on the market. In most cases, a business will sell based on the numbers. Your business broker will help you create a clear financial picture — in timely fashion — and to prepare statements suitable for presentation to a prospective buyer. Remember that buyers may be willing to buy potential, but they don’t want to pay for it. In fact, sellers should be open to about all aspects of the business that might affect the sale; otherwise, once the real facts are revealed, the deal may self-destruct.
Business owners are accustomed to coping with paperwork, but few have had exposure to the specialized contracts and forms required both before and during the selling process. The business broker, an expert at transaction details, will help guard against delays, problems, and premature (or inappropriate) disclosure of information.
Maintain Normal Operations
Another vital activity for the seller is to keep on top of the day-to-day running of the business. When a business intermediary is on hand to focus on the marketing of the business, the seller can focus on keeping daily operations on-target. Sellers are “people people,” and may have visions of wooing buyers with their great presentation of the business. Even if this were to happen, these sellers fail to visualize the number of buyers they would have to “woo-and-win” if handling the sale on their own.
Confidentiality
An adjunct to maintaining the status quo is the important task of maintaining confidentiality. Until a purchase-and-sale agreement has been signed, most sellers do not want to disturb (or jeopardize) the normal interaction with customers and employees; nor do they want to alert the competition. A business broker helps by using nonspecific descriptions of the business, requiring signed confidentiality agreements, and performing a careful screening of all prospects.
To keep the sale of your business on firm ground, be sure that your “strengths” as an independent business owner aren’t actually weakening the sale. Using these key selling points along with the expertise of a business intermediary will keep the process going strong.
Copyright: Business Brokerage Press, Inc.
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Points to Ponder for Sellers
Who best understands my business?
When interviewing intermediaries to represent the sale of your firm, it is important that you discuss your decision process for selecting one. Without this discussion, an intermediary can’t respond to a prospective seller’s concerns.
Are there any potential buyers?
When dealing with intermediaries, it always helps to reveal any possible buyer, an individual or a company, that has shown an interest in the business for sale. Regardless of how far in the past the interest was expressed, all possible buyers should be contacted now that your company is available for acquisition. People who have inquired about your company are certainly top prospects.
Lack of communication?
It is critical that communication between the seller, or his or her designee, and the intermediary involved in the sale, be handled promptly. Calls should be taken by both sides. If either side is busy or out of the office, the call should be returned as quickly as possible.
Does the offering memorandum have cooperation from both sides?
This document must be as complete as possible, and some of the important sections require careful input from the seller. For example: an analysis of the competition; the company’s competitive advantages – and shortcomings; how the company can be grown and such issues as pending lawsuits and environmental, if any.
Where are the financials?
It may be easy for a seller to provide last year’s financials, but that’s just a beginning. Five years, plus current interim statements and at least one year’s projections are necessary. In addition, the current statement should be audited; although this usually presents a problem for smaller firms — better to do it now than later.
Are the attorneys deal-makers?
In most cases, transaction attorneys from reputable firms do an excellent job. However, occasionally, an attorney for one side or the other becomes a deal-breaker instead of a deal-maker. A sign of this is when an attorney attempts to take over the transaction at an early stage. Sellers, and buyers, have to take note of this and inform their attorney that they want the deal to work – or change to a counsel who is a “team player.”
Intermediaries are responsible for handling what is usually the biggest asset the owner has – and they are proud of what they do. Intermediaries realize that the sale of a business can create the financial security so important to a business owner. Even when a company is in trouble, the intermediary is committed to selling it, since by doing so, jobs will be saved – and the business salvaged.
Can I Buy a Business With No Collateral?
By Troy Frank, Owner — Indiana Equity Brokers
Estimated read time: 7 min
The short answer: Yes, it is possible to buy a business with little or no collateral of your own. The two main paths are SBA 7(a) loans, which require as little as 10% down for a business acquisition (and that 10% doesn’t have to be entirely your own cash), and seller financing, where the current owner carries part of the purchase price. Many Indiana acquisitions combine both. The key qualifiers aren’t collateral; they’re your credit score, your relevant experience, and the cash flow of the business you’re buying.
Most people assume buying a business works like buying a house: you need a big down payment, solid assets to pledge, and a bank that trusts you completely. That assumption stops a lot of would-be buyers before they even start looking.
The reality is more flexible than that. The SBA 7(a) loan program was designed specifically to bridge the gap between what buyers have and what lenders typically require. And seller financing — where the seller carries part of the note — is more common than most buyers realize. Understanding how these two tools work, and how to combine them, is what separates buyers who close deals from buyers who stay on the sidelines.
SBA 7(a) Loans: The Most Common Path for Business Buyers
The SBA 7(a) loan is the workhorse of small business acquisitions. For most Indiana buyers, it’s the first tool worth understanding.
Here’s how it works for acquisitions: the SBA guarantees a portion of the loan to the lender — 85% for loans up to $150,000 and 75% for loans above that. That guarantee reduces the lender’s risk enough to make loans that would otherwise be too thin to approve.
How Much Do You Actually Need to Put Down?
The minimum equity injection for an SBA business acquisition loan is 10% of the purchase price. That’s a significant improvement over what most buyers expect. And here’s the part most articles miss: that 10% doesn’t have to be entirely your own money.
The SBA permits a seller note on full standby to count toward up to half of the required injection. In practice, that means a buyer can close with as little as 5% of their own cash, paired with a 5% seller note that goes on standby (meaning the seller can’t be repaid until the SBA loan is fully paid off or a certain time period passes).
For a $500,000 acquisition, that’s $25,000 out of the buyer’s own pocket. Not nothing — but far less than most buyers think they need.
What About Collateral Specifically?
The SBA’s current guidelines (updated under SOP 50 10 8) have loosened collateral requirements compared to prior years:
- Loans up to $50,000: No collateral required by SBA policy
- Loans from $50,000 to $500,000: The acquired business’s assets serve as collateral. Personal real estate is generally not required at this tier.
- Loans over $500,000: The business assets are still primary collateral. Personal real estate may be pledged if business assets fall short, but lenders can’t require it if the deal otherwise qualifies.
The practical takeaway: for most Main Street acquisitions in Indiana (deals in the $200,000–$750,000 range) buyers without personal real estate can still qualify if the business’s own assets and cash flow support the loan.
What Lenders Actually Look For
Lenders underwriting an SBA acquisition loan are evaluating three things:
Your credit score. A 680+ FICO is the general minimum. Scores below that significantly limit your options, regardless of the deal quality.
Your relevant experience. Lenders and the SBA want to see at least 2 years of management or direct industry experience. You don’t need to have owned a business before, but you need to demonstrate you can run one.
The business’s cash flow. This is the biggest factor. The business must show a debt service coverage ratio (DSCR) of at least 1.25x after the acquisition debt is added. In plain terms: the business needs to generate at least $1.25 in cash for every $1.00 it will owe in loan payments. A strong, well-documented business makes lender approval significantly easier.
We’ve walked many Indiana buyers through this process. The deals that move quickly are the ones where the buyer’s qualifications and the business’s financials both tell a clean story.
Seller Financing: The Option Most Buyers Don’t Ask About
A lot of buyers never ask sellers about financing. They assume the answer is no. That assumption is wrong more often than you’d think.
Seller financing means the seller agrees to receive part of the purchase price over time, rather than all at closing. The buyer pays the seller directly, typically at a negotiated interest rate over 3–7 years. The seller essentially becomes the bank for a portion of the deal.
Why would a seller agree to this? Several reasons:
- It expands the buyer pool. Cash-only or heavily qualified deals limit who can buy.
- It signals confidence. A seller willing to carry a note is telling the buyer they believe in the business’s future cash flow.
- There can be tax advantages for the seller in spreading income over multiple years.
- In competitive markets, offering seller financing can be the difference between a deal that closes and one that falls apart.
In our experience at Indiana Equity Brokers, seller financing is a feature of a meaningful share of Main Street transactions (particularly for businesses in the $200,000–$1 million range). Buyers who come to the table understanding how to structure a seller note tend to close more deals.
The SBA + Seller Financing Stack
Combining an SBA 7(a) loan with seller financing is the most powerful low-collateral structure available to business buyers. Here’s a simplified example of how the stack might look on a $600,000 acquisition:
- SBA 7(a) loan: $510,000 (85% of purchase)
- Seller note on standby: $30,000 (5% — counts toward equity injection)
- Buyer cash injection: $30,000 (5% — from buyer’s own funds, savings, gift, or investor)
- Seller note (active): $30,000 (additional seller carry, separate from the standby note)
This structure isn’t hypothetical — it’s the kind of deal structure that closes regularly. The buyer brings $30,000 of their own money to acquire a $600,000 business. The key is that all layers have to be disclosed to and approved by the SBA lender. Hidden seller notes are a fast track to loan denial.
One important detail: SBA rules require seller notes used as equity injections to be on full standby during the SBA loan term. The seller can’t receive repayment until conditions are met. Most sellers who agree to carry a note understand this, but it needs to be clearly negotiated upfront.
For a deeper look at how SBA loans work for Indiana buyers, our complete guide to SBA loans for business acquisition walks through the full process.
What Actually Stops Most Buyers (It’s Not Collateral)
After working with buyers across Indiana for more than 23 years, the collateral question is rarely what actually blocks a deal. Here’s what does:
Poor credit. A 580 credit score won’t get an SBA loan approved regardless of the deal quality. If your credit needs work, start there. 6–12 months of focused improvement can open doors that are currently closed.
No relevant experience. Lenders and sellers both want buyers who can actually run the business. If you’re buying a manufacturing company but your background is in retail, expect harder questions. The fix is to find a business in a sector where you have transferable skills, or to bring on a partner or key employee who fills the experience gap.
An undocumented business. The SBA lender will order their own appraisal and review the business’s financials independently. If the seller’s books don’t support the purchase price or if the cash flow doesn’t cover the debt service, no amount of buyer qualification fixes it. The business has to pencil out.
Overestimating what “no collateral” means. Buying a business with no collateral doesn’t mean buying a business with no skin in the game. You’ll still need cash for the equity injection, closing costs, and working capital reserves. Budget for total out-of-pocket costs of 12–15% of the purchase price even in a well-structured low-down-payment deal.
Frequently Asked Questions
Can you really buy a business with no money down in Indiana? True zero-money-down acquisitions are rare and typically limited to seller-financed deals where the seller agrees to carry 100% of the purchase price, which is uncommon. Most low-collateral acquisitions require a minimum of 5–10% of the buyer’s own cash. SBA 7(a) loans require a 10% equity injection, which can include a seller note on standby, reducing the buyer’s personal cash contribution to as little as 5%.
What credit score do you need to buy a business with an SBA loan? Most SBA lenders require a minimum FICO score of 680 for a business acquisition loan. Scores below that may still qualify with certain lenders, but the pool narrows significantly and terms are less favorable. Before searching for a business to buy, it’s worth knowing your credit score and addressing any issues.
How does seller financing work when buying a business? Seller financing means the seller agrees to receive part of the purchase price in installments after closing, rather than all at once. The buyer pays the seller directly over a set term, typically 3–7 years, at a negotiated interest rate. Seller notes can be structured alongside SBA loans, though the SBA requires disclosure of all notes and may require the seller note to be on standby during the SBA loan term.
What does the SBA mean by “equity injection”? The equity injection is the buyer’s contribution to the deal and it is the portion of the purchase price not funded by the SBA loan. For business acquisitions, the SBA typically requires 10% equity injection. This can come from the buyer’s personal savings, a gift from a family member, funds from investors, or a seller note placed on full standby. The source must be documented and disclosed to the lender.
What businesses in Indiana can be bought with SBA financing? Most for-sale businesses in Indiana are eligible for SBA 7(a) financing as long as the business meets SBA eligibility requirements: it must be a for-profit U.S. business, the buyer must have relevant experience, and the business must demonstrate sufficient cash flow to service the debt. Some business types (certain financial businesses, passive income real estate, and a few others) are excluded. An SBA-preferred lender can quickly tell you whether a specific business qualifies.
Ready to Start Looking?
Buying a business in Indiana without a mountain of collateral is genuinely possible. The buyers who succeed aren’t necessarily the ones with the most money. They’re the ones who understand the financing structures available to them and come to the table prepared.
Indiana Equity Brokers works with buyers at every stage of this process. Whether you’re still figuring out what you can afford or you’re ready to make an offer, we can connect you with Indiana businesses currently for sale and walk you through how the financing typically comes together on deals like the ones you’re considering.
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Should You Sell Your Business to a Competitor?
By Troy Frank, Owner — Indiana Equity Brokers
Estimated read time: 8 min
The short answer: Yes, selling a business to a competitor is possible and common — and competitors frequently pay 20–30% more than financial buyers because they’re acquiring strategic value, not just cash flow. The risk is real: a competitor who gains access to your customer lists, pricing, and trade secrets under the guise of due diligence can walk away with that information even if the deal falls through. The way to protect yourself is a properly structured process: a signed NDA before any disclosure, staged access to sensitive information, and a business broker handling all communications as a buffer between you and the buyer.
A seller recently came to us with a direct call from their biggest competitor. The competitor wanted to buy. The price they were floating sounded strong. The seller was tempted to meet and talk through the details.
We told them to slow down.
Not because a competitor can’t be the right buyer — they often are. But because the moment you start disclosing information to a competitor outside of a structured process, you’ve given away leverage you can’t get back.
Selling a business to a competitor requires a different approach than selling to a financial buyer or a first-time owner. This article covers what that approach looks like, why competitors sometimes pay more, and how to protect yourself if the deal falls apart.
Why Competitors Often Pay More
A financial buyer — a private equity firm, a search fund, a first-time owner using an SBA loan — buys a business because the cash flow justifies the price. Their analysis is straightforward: what does this business earn, and what multiple is that worth?
A competitor calculates differently.
They’re not just buying earnings. They’re buying your customer relationships. Your market share. Your key employees. Your geographic presence. In some cases, they’re buying the elimination of a rival. Each of those elements has strategic value that goes beyond what the income statement shows.
That’s why strategic buyers — which is what competitors are, in acquisition terms — routinely pay more than financial buyers for the same business. Research consistently shows competitor acquisitions can command a 20–30% premium over comparable transactions with financial buyers. For a business worth $800,000 to a financial buyer, a motivated competitor might offer $960,000 to $1,040,000 for the same asset.
This premium isn’t guaranteed. It depends on what your business specifically offers the acquiring competitor. But the possibility of a strategic premium is the main reason sellers should keep competitors in the buyer pool — while protecting themselves carefully throughout the process.
The Confidentiality Problem
Here’s what the original advice on this topic usually misses: the risk isn’t that a competitor will make a lowball offer. The risk is that they’ll use the sale process to gain access to information they’d never be able to get otherwise — and then walk away from the deal.
Think about what happens during due diligence:
- You share your customer list
- You disclose your pricing structure
- You reveal your supplier relationships and contract terms
- You show your margin breakdown by customer or product line
- Your key employees may be identified
A competitor who absorbs that information and then “decides not to proceed” has just conducted competitive intelligence at your expense. They may use your customer list to poach clients. They may undercut your pricing now that they know your cost structure. They may recruit your best employees.
This isn’t hypothetical. We’ve seen it happen. The sellers who avoid it are the ones who enter the process with a structured approach — not a handshake and a coffee meeting with their competitor.
The NDA Is Non-Negotiable — And It Has to Be the Right Kind
Before you share anything — revenue, customer count, address, employee headcount — the buyer signs a Non-Disclosure Agreement. Full stop.
But not all NDAs protect you equally. For a competitor specifically, the NDA should include:
Non-solicitation clauses. The agreement should prohibit the buyer from contacting your employees, customers, or suppliers for a defined period — typically 18–24 months — if the deal falls through.
Specific definitions of confidential information. Generic NDAs say “proprietary information.” A competitor-specific NDA names what’s covered: customer lists, pricing, supplier contracts, financial statements, operational processes.
Consequences for breach. The NDA should specify remedies — ideally including liquidated damages — not just “we can sue you.” A breach that requires litigation to enforce is only a partial deterrent.
Have your transaction attorney draft or review the NDA before a competitor sees a single document. This is not the step to handle with a standard template.
How the Process Should Work
When the buyer is a competitor, how you structure information disclosure matters as much as the NDA itself.
Use a Broker as a Buffer — Always
Never negotiate directly with a competitor buyer. Use a business broker to manage all communications.
This isn’t just about leverage (though a broker does help with that). It’s about information control. A broker controls what gets shared, when it gets shared, and in what format. They can qualify the buyer’s financial capacity before any sensitive documents are released. They can structure the process so the competitor learns what they need to make an offer without learning what they’d need to compete against you.
Direct conversations between seller and competitor buyer create information leakage in both directions. The seller says too much. The buyer probes for information under the guise of “just understanding the business.” A broker eliminates that dynamic entirely.
Stage the Disclosure
Structured disclosure means the buyer earns access to more sensitive information as they get closer to a committed offer.
A typical staged approach for a competitor sale:
- Stage 1 (before NDA): Nothing. General industry and market context only.
- Stage 2 (after NDA, before LOI): High-level financials, basic operational overview, physical location. No customer lists, no pricing, no employee details.
- Stage 3 (after signed LOI with deposit or breakup fee): Full financial statements, customer concentration data, key supplier relationships, detailed operational information.
- Stage 4 (under purchase agreement, near closing): Employee names and roles, customer contact information, proprietary processes and systems.
A competitor who won’t agree to a staged approach — who insists on seeing everything before they’ll make an offer — is a yellow flag. Legitimate buyers with real intent accept a structured process. Buyers using the process for intelligence gathering push to skip steps.
Consider a Break-Up Fee
When a competitor is the buyer, negotiating a break-up fee into the LOI is worth discussing with your attorney. A break-up fee is a payment the buyer makes to the seller if they walk away after signing the LOI without cause. The typical range is 1–3% of the deal value.
On a $700,000 deal, a 2% break-up fee is $14,000. That doesn’t fully compensate a seller for information disclosed during due diligence — but it does give a competitor buyer a concrete financial reason to complete the deal rather than use the process as a research exercise.
Non-Compete and Transition: What to Expect
When a competitor buys your business, the non-compete they ask for will almost certainly be longer and broader than what a financial buyer would require.
A financial buyer buying your landscape company needs you not to start a competing landscape company for two or three years within a reasonable radius.
A competitor buying your landscape company already has their own infrastructure, customers, and staff. What they need is assurance that you won’t rebuild your customer base from scratch nearby. They’ll push for a longer duration — typically three to five years — and a wider geographic scope than what you’d see in a typical Main Street transaction.
This isn’t unreasonable from the buyer’s perspective. They’re paying a premium partly because they’re eliminating a competitor. If you can recreate the business in 18 months, they overpaid.
What sellers should push back on:
- Scope that exceeds what you sold. If you sold an Indianapolis-area business, a statewide non-compete is broader than necessary.
- Ambiguous industry definition. “Any business similar to the one sold” can be read to prevent you from working in your entire field. Push for specific language about exactly what you can’t do.
- Unclear carve-outs. If you’re staying on as a consultant, your consulting activities need to be explicitly permitted.
Your transaction attorney negotiates these terms. Don’t accept the buyer’s first draft. Don’t accept your broker’s paraphrase of what the terms say. Read the document with your attorney before signing.
We’ve covered the broader legal mistakes sellers make in our post on legal mistakes that can derail an Indiana business sale — the non-compete issues that come up in competitor sales are exactly the kind of thing that post addresses.
When Selling to a Competitor Makes Sense — and When It Doesn’t
A competitor can be the best buyer for your business. They can also be the worst. The difference usually comes down to a few factors.
It Makes Sense When:
The strategic premium is real. If your business gives the competitor something they can’t build organically — your customer relationships, your geographic territory, your key employees — they’ll pay for it. That premium justifies the additional risk and complexity of a competitor sale.
The buyer is financially qualified. Unlike first-time buyers, most competitors have operating businesses and access to commercial financing. A financially stable competitor is less likely to need seller financing and more likely to close without financing contingencies.
Confidentiality is manageable. In some industries, the information exchanged during due diligence is less sensitive than others. A business with commodity pricing and publicly visible operations carries less disclosure risk than one with proprietary processes or exclusive supplier contracts.
It Doesn’t Make Sense When:
You’re the market leader and your information is your moat. If your customer relationships, pricing structure, or operational knowledge would materially help a competitor — even if the deal fell through — the risk may outweigh the premium.
The competitor is already struggling. A competitor who can’t finance the deal without seller financing, who pushes for extended earnout structures, or who has spotty financials of their own introduces risk that a financial buyer wouldn’t. The strategic premium isn’t worth a seller note on a distressed business.
The process isn’t structured. A competitor who won’t sign a proper NDA, won’t accept staged disclosure, or wants to bypass the broker is signaling that their interest in buying may be secondary to their interest in information.
We explore how confidentiality works throughout the full sale process on our maintaining confidentiality page — it’s worth reading before you engage with any competitor buyer.
Frequently Asked Questions
Is it common to sell a business to a competitor? Yes. Strategic acquisitions — where the buyer is a competitor, supplier, or adjacent business — represent a significant share of small and mid-market business sales. Competitors are often motivated buyers because the acquisition gives them something they’d otherwise have to build: customer relationships, market share, geographic coverage, or key employees. That strategic value is why competitor buyers frequently pay more than financial buyers for the same business.
Do competitors pay more when buying a business? Often, yes. Competitors buying businesses for strategic reasons — eliminating a rival, gaining customers, expanding territory — frequently pay a 20–30% premium over what a financial buyer would pay for the same cash flow. This “strategic premium” reflects the value the acquisition has beyond the income it generates. Not every competitor sale commands a premium, but the possibility is a genuine reason to keep competitors in the buyer pool.
What are the risks of selling a business to a competitor? The primary risk is information exposure. A competitor who enters due diligence and then declines to proceed has potentially gained access to your customer list, pricing structure, supplier terms, and employee details — information they can use even after walking away from the deal. Mitigation requires a properly drafted NDA with non-solicitation clauses, staged disclosure (sensitive information only after a signed LOI), and a business broker managing all communications.
Should I negotiate directly with a competitor who wants to buy my business? No. When a competitor is the buyer, a business broker acting as intermediary is more important than in a typical sale — not less. The broker controls information disclosure, qualifies the buyer’s financial capacity before sensitive documents are shared, and prevents the kind of direct conversations that create information leakage. Sellers who negotiate directly with competitor buyers typically disclose too much, too early, with insufficient protection.
How long is a non-compete when selling to a competitor? Non-competes in competitor acquisitions typically run three to five years, compared to the two to three year standard in financial buyer transactions. The geographic scope may also be wider. This is expected — the buyer is paying a premium to eliminate a rival and won’t accept terms that allow the seller to recreate the same competition shortly after closing. Sellers should push back on vague industry definitions and geographic scope that exceeds what was actually sold, but should expect the duration to be longer than in a non-competitor sale.
The Right Buyer Is the One Who Pays You the Most — Safely
A competitor can be your best buyer. They can also be your biggest liability. The difference is entirely in how the process is managed.
At Indiana Equity Brokers, we’ve represented sellers in transactions where the buyer was a direct competitor — and we’ve also helped sellers recognize when a competitor’s interest was more about intelligence than acquisition. Knowing the difference takes experience with how competitor buyers operate.
If a competitor has reached out to you — or if you’re wondering whether a competitor might be the right buyer for your business — a confidential conversation is the right first step. It costs nothing and takes about 20 minutes.
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Learn the Dynamics and Save the Deal
Many business owners are unfamiliar with the dynamics of selling a company, because they have never done so. There are numerous possible “deal breakers.” Being aware of the following pitfalls and their remedies should help prevent the possibility of an aborted transaction.
Neglecting the Running of Your Business
A major reason companies with sales under $20 million become derailed during the selling process is that the owner becomes consumed with the pending transaction and neglects the day to day operation of the business. At some time during the selling process, which can take six to twelve months from beginning to end, the CEO/owner typically takes his or her eye off the ball. Since the CEO/owner is the key to all aspects of the business, his lack of attention to the business invariably affects sales, costs and profits. A potential buyer could become concerned if the business flattens out or falls off.
Solution: For most CEOs/owners, selling their company is one of the most dramatic and important phases in the company’s history. This is no time to be overly cost conscious. The owner should retain, within reason, the best intermediary, transaction lawyer and other advisors to alleviate the pressure so that he or she can devote the time necessary for effectively running the business.
Placing Too High a Price on the Business
Obviously, many owners want to maximize the selling price on the company that has often been their life’s work, or in fact, the life’s work of their multi-generation family. The problem with an irrational and indiscriminate pricing of the business is that the mergers and acquisition market is sophisticated; professional acquirers will not be fooled.
Solution: By retaining an expert intermediary and/or appraiser, an owner should be able to arrive at a price that is justifiable and defensible. If you set too high a price, you may end up with an undesirable buyer who fails to meet the purchase price payments and/or destroys the desirable corporate culture that the seller has created.
Breaching the Confidentiality of the Impending Sale
In many situations, the selling process involves too many parties, and due to so many participants in the information loop, confidentiality is breached. It happens, perhaps more frequently than not. The results can change the course of the transaction and in some cases; the owner—out of frustration—calls off the deal.
Solution: Using intermediaries in a transaction certainly helps reduce a confidentiality breach. Working with only a few buyers at a time can also help eliminate a breach. Involving senior management can also prevent information leaks.
Not Preparing for Sale Far Enough in Advance
Most business owners decide to sell their business somewhat impulsively. According to a survey of business sellers nationwide, the major reason for selling is boredom and burnout. Further down the list of reasons reported by survey respondents is retirement or lack of successor heirs. With these factors in mind, unless the owner takes several years of preparation, chances are the business will not be in top condition to sell.
Solution: Having well-prepared and well-documented financial statements for several years in advance of the company being sold is worth all the extra money, and then some. Buying out minority stockholders, cleaning up the balance sheet, settling outstanding lawsuits and sprucing up the housekeeping are all-important. If the business is a “one-man-band,” then building management infrastructure will give the company value and credibility.
Not Anticipating the Buyer’s Request
A buyer usually has to obtain bank financing to complete the transaction. Therefore, he needs appraisals on the property, machinery and equipment, as well as other assets. If the owner is selling real estate, an environmental study is necessary. If a seller has been properly advised, he will realize that closing costs will amount to five to seven percent of the purchase price; i.e., $250,000-$350,000 for a $5 million transaction. These costs are well worth the expense, because the seller is more apt to receive a higher price if he can provide the buyer with all the necessary information to do a deal.
Solution: The owner should have appraisals completed before he tries to sell the business, but if the appraisals are more than two years old, they may have to be updated.
Seller Desiring To Retire After Business Is Sold
It is a natural instinct for the burnt-out owner to take his cash and run. However, buyers are very concerned with the integration process after the sale is completed, as well as discovering whether or not the customer and vendor relationships are going to be easily transferable.
Solution: If the owner were to become a director for one year after the company is sold, the chances are that the buyer would feel a lot more secure that the all-important integration would be smoother and the various relationships would be successfully transferable.
Negotiating Every Item
Being boss of one’s own company for the past ten to twenty years will accustom one to having his or her own way… just about all the time. The potential buyer probably will have a similar set of expectations.
Solution: Decide ahead of the negotiation which are the very important items and which ones are not critical. In the ensuing negotiating process, the owner will have a better chance to “horse trade” knowing the negotiatiable and non-negotiable items.
Allocating Too Much Time for Selling Process
Owners are often told that it will take six to twelve months to sell a company from the very beginning to the very end. For the up-front phase, when the seller must strategize, set a range of values, and identify potential buyers, etc., it is all right to take one’s time. It is also acceptable for the buyer to take two or three months to close the deal after the Letter of Intent is signed by both parties. What is not acceptable is an extended delay during which the company is “put in play” (the time between identifying buyers, visiting the business and negotiating). This phase should not take more than three months. If it does, this means that the deal is dragging and is unlikely to close. The pressure on the owner becomes emotionally exhausting, and he tires of the process quickly.
Solution: Again, the seller needs to have a professional orchestrate the process to keep the potential buyers on a time schedule, and move the offers along so the momentum is not lost. The merger and acquisition advisor or intermediary plays the role of coach, and the player (seller) either wins or loses the game depending on how well those two work together.
Copyright: Business Brokerage Press, Inc.
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