How A Business Broker Holds the Deal Together

Expert Business Broker Communicates Effectively

A major factor in closing any business deal is communication. The business broker for a business deal must ensure that both the buyer and the seller properly communicate their goals, intentions, and statements to one another. Effective communication is the key when it comes to holding a deal together through closing. With honest, open, and accurate communication the buyer and seller of a business deal will engender trust for one another and a successful closing is far more likely.

Establish Trust Between Buyer and Seller

Effective communication between the buyer and the seller should establish trust. Neither party should believe that the other party has any nefarious purpose in selling or buying the business. Once trust is established, major issues can become minor ones and the deal will stay on the rails. Communicating information in an open, understandable, and honest way is often the difference between a deal closing and a deal falling apart. Hiring the right business broker is essential to this process.

Key Factors In Establishing Trust:

  • Establish personal rapport between the buyer and seller.
  • Disclose all relevant issues as early in the process as possible.
  • Properly communicate the financial picture of the company prior to and during the formal due diligence phase.

Establishing Personal Rapport 

It is always helpful to a business deal if the buyer and seller can establish personal rapport and mutual respect.  If the buyer walks away from meeting the seller thinking that the seller is dishonest or not trustworthy then the deal has little chance of having a successful conclusion. On the other hand, if the buyer and the seller personally respect and trust one another, and honestly enjoy each other’s company, then the deal is far more likely to close.

Seller’s Note At Risk if Trust Not Established

If personal rapport or trust is not established, then a seller may not wish give a Note to the buyer (or deal with the buyer at all). A seller’s note is whereby part of the purchase price is held back in the form of a Note owed to it by the buyer. If the buyer comes off as untrustworthy or unprepared, then the seller is less likely to give the buyer a Note.

If Buyer and Seller Have Background In Same Industry

When the buyer and seller are in the same industry then usually personal rapport or trust increase dramatically because they speak each other’s jargon or know mutual people. Being from different industries is normally fine as well so long as each side has an open mind about the capabilities of the other. Trust normally is granted (in stages) when the buyer and seller spend time speaking and simply getting to know each other during the buyer-seller meeting.

Disclose All Relevant Issues Ahead of Time

Effective communication between a buyer and seller includes disclosing all relevant issues ahead of time. It is far more damaging (from a buyer’s perspective especially) to be ‘blindsided’ at the eleventh hour before closing by an issue that should have been disclosed ahead of time. In turn, it is a business broker’s job to ensure that these issues were discussed ahead of time and brought to everyone’s attention.

Example of Disclosing Relevant Issues

  • A common example of a relevant issue that should be disclosed ahead of time is a ‘lease-transfer fee’ contained in some commercial leases.
  • A ‘lease transfer fee’ is a clause in some commercial leases whereby the tenant must pay a fee to the landlord in order to transfer the lease to another party.
  • Sometime these fees can be quite significant.
  • If the seller does not wish to pay the fee, then they may want the buyer to pay the fee.
  • The buyer in turn may consider such a fee the responsibility of the seller.
  • The fall-out from such an unfortunate circumstance can be considerably lessened in severity if this issue is disclosed to the buyer before it comes time to transfer the lease.
  • Then the parties could have negotiated a reasonable compromise (or asked the landlord to reduce the lease transfer fee).
  • All such issues should be disclosed, discussed, and agreed upon as early in the process as possible so that a negotiated compromise can occur.

Effective Communication During Formal Due Diligence 

In the formal due diligence phase (after a purchase contract or Letter of Intent is signed), a buyer examines the seller’s detailed financial records or otherwise observes the business’s operations for a period of time. Trust and personal rapport should be established prior to the start of formal due diligence. That way the buyer will be far more likely to engage openly and honestly with the seller when questions inevitably arise.

Buyers May Be Frustrated During Due Diligence 

It is often difficult to paint an accurate picture of what exactly is happening in the business…

  • Sometimes cash sales do not always show up in the company’s financials.
  • Sometimes a seller uses a very significant amount of personal expenses as business expenses (thus obscuring the reported profits).
  • Sometimes the financials are so incomplete that the only way in which a buyer can uncover the actual sales and profits is to observe the business for a period of time.
  • No matter the reason for why the financials may be difficult to understand, effective communication between the buyer and seller will greatly aid the buyer in understanding the true picture of the business’s profitability.
  • If the buyer receives a clear and concise explanation – as early as possible in the buying process – of the company’s financials in a way that makes sense then the deal is far more likely to make it through the due diligence stage.

Get Your Deal Closed 

Once some degree of personal trust is established, all relevant issues are disclosed ahead of time, and effective communication portrays accurate financial information to a buyer prior to and during the formal due diligence phase, a deal will have a much greater chance of success and actually closing.

Give Martin at Five Star Business Brokers of Palm Beach County a call today for a free evaluation for your business.