As an intermediary doing deals in the NC Triangle market, I see a lot of buyers and sellers of businesses trying to achieve success. Success means a lot of things for a lot of people, but to me success means the following:
Success for a Business Owner
Success will certainly be different for every owner, but every owner should be able to look back after a transaction and feel satisfaction that the challenge they faced was overcome, and they have achieved what they sought. For some that amount may be a magic number in dollars for consideration, for others it may simply be to remove a burden that grew heavy over many generations. An owner should feel that they reaped a reward for hard work, and they can “close the book” on a story that had a beginning, a middle, and an end.
Success for a Business Buyer
Most business buyers are seeking a puzzle piece to fit into their puzzle. They have ranges for earnings, involvement, team size, and similar that works for them, and they recognize that starting from scratch will cost more or take longer than buying “pre-owned.” They’re seeking a business that is close to all of their ideals which they can make their own, add their unique talents, and take to the next level. Smart buyers often appreciate value in businesses; they know that price is what you pay, but value is what you get. They want to get something fairly or aggressively priced that they can take to the next level. Often buyers are seeking a job with entrepreneurial freedom, or an add on their business portfolio.
Success for a Buyer/Seller Meeting
Business sales are different from real estate sales because it’s all about the history of the business, and the people who created it. Buyer/seller meetings are not a “thing” in real estate sales, but they are critical in business sales. For this reason success in a buyer/seller meeting is critical.
For the buyer, success in this meeting is truly understanding the reason for sale, and recognizing that whatever the reason is for the seller to let go of the business won’t apply to the new owner. This is why retirement, health, and relocation are great reasons for the sale of a business, and reasons such as “other business interests” are often red flags.
Success for the seller of the business is to gain confidence in the prospective buyer as a serious candidate to buy their business, and to answer their questions sufficiently to overcome objections without sharing personal frustrations with the business which may cause concerns for the buyer.
Success for a Partnership
When more than one person comes together to buy a business, there are many ways that a partnership can form. Sometimes one partner is more involved in the business while another partner contributes more capital to the deal. Alternatively multiple owners could be equal partners in equity and work contributions. One thing that is uncommon is that people have equal skill sets and preferences. Success in partnerships can be owners recognizing each others skill sets, bringing their best and complementary qualities to the enterprise, and being happy with their share of the results financially. Finally, recognition can be an important component of partnerships, some owners care about getting the “credit,” while some do the work for internal reasons.
Success for financial institutions
Generally lenders are seeking entrepreneurs seeking to leverage their assets for long term investments. While it depends on the type of financial vehicle, most want the owner to have some “skin in the game” with a down payment, but more importantly they want confidence that there’s a clear path for the loan to be paid back. They may look to the business to be acquired to show historical, proven performance to pay the loan, or they may look at the buyer for financial strength. Success for the bank is getting their money back with a market rate return.
Success in Deal Structure
There are many ways to structure a deal, and often complex deal structures are organized around risk. Successful deals balance risk and reward. If a business has a long history of cash flow that is not dependent on any changeable factor, often a straightforward all cash at closing transaction is sufficient, but few deals are this perfect. Often sales are dependent on relationships, sales histories are inconsistent, customers or vendors are concentrated, or a myriad of other factors introduce risk that the future may not be the same as the past. In these situations, success may be best represented in an “if then” type of deal structure where consideration is contingent on the risk factor being overcome. As an example, a dentist who sells her practice may get paid over time, if and when the patients return for the new owner. Or a software company owner may receive a “kicker” if and when a target client is landed after the sale to a new owner is closed.
Success in Deals
Deals are fun because every one is different, and because buyers and sellers have naturally opposing goals for success. But there are always cross sections within a deal where buyers and sellers can align for success. Buyers and sellers need each other to complete transactions. Tensions can be high in deals, and intermediaries can help by reminding all parties what success looks. Skilled intermediaries can act as a buffer to reduce tensions in a deal, and bring the success of prior deals into deals that seem “stuck” to reuse solutions that have worked before. Successful deals lead to more successful deals, and they can also lead to friendships and great memories.
If you’re seeking to accomplish success in a deal, contact VR Business Brokers for a confidential conversation about your options for exit.