A major factor in closing any business deal is communication. With honest, open, and accurate communication the buyer and seller of a business deal will engender trust for one another. Once trust is established, major issues can become minor ones and the deal will stay on the rails. At Five Star Business Brokers of Palm Beach County, we have learned that communicating information in an open, understandable, and honest way is often the difference between a deal closing and a deal falling apart. Strong communication includes the establishment of a personal rapport between the buyer and seller, disclosing all relevant issues as early in the process as possible, and properly communicating the financial picture of the company prior to and during the formal due diligence phase.
It is essential that effective communication between buyers and sellers contain personal rapport or at least some degree of personal trust. 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. Likewise, a seller may not wish give a Note to the buyer (or deal with the buyer at all) if the buyer comes off as too confrontational, demanding, rude, or unprepared. Affording each side personal respect and time to communicate all of their questions and concerns is of utmost importance. 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. Five Star Business Brokers takes every such buyer-seller meeting very seriously as the best way of starting to establish the crucial component of trust in a business deal.
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 any 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. For example, some deals can be blindsided by unexpected problems with the lease. A lease that is being assumed by the buyer may contain a clause whereby the tenant (or seller) must pay a seemingly exorbitant fee in order to transfer the lease to a buyer. If the seller does not wish to pay the fee, then they may want the buyer to pay the fee. The fall-out from such an unfortunate circumstance can be considerably lessened in severity if this issue is disclosed to the buyer before the deal was agreed upon. Then the parties could have negotiated a reasonable compromise (or asked the landlord to reduce the lease transfer fee). At Five Star Business Brokers of Palm Beach County, we take all possible steps to ensure that such issues are disclosed, discussed, and agreed upon as early in the process as possible so that a negotiated compromise can occur.
During the formal due diligence process of most business deals, effective communication between the buyer and seller will significantly lessen the chances of a buyer choosing not to proceed with the deal. In the formal due diligence phase (after a purchase contract or Letter of Intent is signed), a buyer examines the seller’s financial records or otherwise observes the business’s operations for a period of time. 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). Or 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 (with the assistance of Five Star Business Brokers of South Florida) 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. The buyer should be convinced in a clear, concise, honest, and accurate way that the financials are understandable and should be convinced of the best method to conduct due diligence.
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.
Located in Palm Beach County, Florida, Five Star Business Brokers proudly transacts business sales throughout the areas of West Palm Beach, Lake Worth, Palm Beach Gardens, Boca Raton, Jupiter, Delray Beach, Boynton Beach, Wellington, Palm Beach, Royal Palm Beach, and Riviera Beach.