Viewing by month: February 2010
Due Diligence: Critical for a Successful Transaction
Due diligence is the process through which a potential buyer evaluates a company or its assets for acquisition prior to signing a contract. It can be equated with a potential buyer of a house getting an inspection. The buyer, in either case, wants to find out everything they can about their acquisition before they make a purchase at risk of getting stuck with a lemon. As with house buying, many sales of businesses fail during this process because the buyer either gains, or fails to gain, information. In many cases either one can result in making him or her uneasy.
It is always in the best interest of the seller to be forthcoming about any information that you would want to know if you put yourself in the shoes of the buyer. The more open and honest, the better; your honesty will gain the buyer’s confidence, which will put you in a much better position to close the sale.
The buyer should provide you with a detailed list of any and all materials they would like to have for review. This Due Diligence Check list offers a comprehensive list of items that may be requested, or to consider requesting if you are the buyer.
It is common for the seller to feel uncomfortable with disclosing everything asked for by the buyer. If you decide not to disclose certain items, you first better have a valid reason, and second, should reconsider that decision and see if you can give the buyer what they are looking for in the best way possible. If your fear is disclosure jeopardizing the sale, you need to realize that non-disclosure may end up doing the very same. Being as transparent as possible during this stage of the selling process is going to get you farthest in finalizing the sale of your business.
Considerations for the First Time Business Buyer
It goes without saying that purchasing a business is a decision not to be taken lightly. There are a number of factors worth giving serious consideration that, when you do, will allow you to sidestep many potential problems. The first, and likely most obvious, is deciphering the type of business that you want to own. Many people tend to gravitate to a particular type of business as a result of personal interest or previous experience. Identifying such an affinity is a good first step. Deciding if you prefer a retail or service-based business is another very helpful step. If you can’t stand the idea of storing inventory and constant ordering and reordering, retail is probably not for you. Both have their challenges and it is a good idea to become acquainted with them if the choice isn’t an obvious one. Another choice you have that will help to narrow your options is whether to consider a franchise opportunity. Owning a franchise comes with many benefits along the lines of having a proven model on which to base your business. The franchise owner also enjoys corporate support and benefits from large-scale marketing campaigns and a recognizable name. You pay a price for these perks, however, and will likely find that a stand-alone business is more affordable, partly because the current owner is going to be more willing to work with you on a price and a payment structure that meets your needs and budgetary limitations. Once you’ve decided on the type of business you’d like to own, acquiring the funds necessary to purchase a business is your next consideration. There are frankly a surprising number of options. The more motivated and creative you are, the better, and keep in mind, it is not unusual for the seller to provide much of the financing.