Expert Business Broker Communicates
A major factor in closing any business deal is communication. The buyer and the seller must properly communicate their goals, intentions, and questions to one another. An expert business broker facilitates this communication and anticipates key questions and issues of a business deal which must be addressed in order to effectuate a smooth sale. Effective communication is also the key when it comes to holding a deal together through closing. With honest, open, and accurate communication the buyer and seller will engender trust for one another and a successful closing is far more likely.
Establish Trust
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.
Establish 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 Depends on Trust
If personal rapport or trust is not established, then a seller may not wish give a Note to the buyer via seller-financing. When the buyer comes off as untrustworthy or unprepared, the seller is less likely to offer seller-financing. A buyer and seller in the same industry usually establish personal rapport and trust because they are likely to speak the same industry jargon and know mutual people in the industry. 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 earned (in stages) when the buyer and seller spend time speaking and getting to know each other during the buyer-seller meeting. This may persuade a seller to partially finance the deal.
Disclose 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 any relevant issues are 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 where 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.
- The seller may not wish to pay the fee, and may insist that it is the buyer’s responsibility.
- 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 negotiate a reasonable compromise (or ask 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 and seller are more likely to engage openly and honestly with each other when questions inevitably arise.
Buyers May Be Frustrated During Formal Due Diligence
It is often difficult to paint an accurate picture of what exactly is happening in a 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.
- A buyer that receives a clear and concise picture – as early as possible in the buying process – of the company’s financial picture is far more likely to make it through the formal due diligence stage.
Business deals have a much greater chance of successfully closing when the buyer and seller establish personal rapport and trust, all relevant issues are disclosed early in the sale process, and accurate financial information is conveyed to the buyer prior to the formal due diligence phase.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a free evaluation for your business.