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To buy a business for the right price and make the whole deal work from a cost and profit upside perspective — for it to be more advantageous to buy than to build the business, you need knowledge and discipline.
I have also sold one of my own businesses and I was on the corporate development team for a publicly-traded media company, tasked with identifying acquisition targets and negotiating and closing the purchase of other media companies. Throughout the years, with different clients and companies in many different industries buying and selling technology companies, retail and online retail businesses, service companies, engineering and other professional firms, energy companies, home-based and single website businesses, etc.
These mistakes include financial, operational execution-type , and legal issues. If you make these mistakes, you may not get your deal closed or, even worse, you may close the deal and regret it. Some buyer-side mistakes may be so significant or fundamental that they jeopardize the closing of the deal.follow
Expensive Mistakes Book
You want to be aware of these mistakes so that you can work with the buyer to resolve them and get your deal closed. Also, these mistakes can be costly, eroding value for the company you spent so much time and effort building. Or, you may be staying on with the company or care about the employees who are going to work for the acquirer I hope you care about them! And, your plans should be detailed and guide the acquisition process. Your acquisition and closing plans should be a roadmap — flexible enough to bend or break or be scrapped entirely as new needs and considerations arise. There are lots of moving parts in mergers and acquisition.
You are dealing with humans, which means emotions will impact actions and nothing will go exactly as scripted. Be sure to build in some flexibility and allow the process to run its natural course to account for these curveballs. Recently I was working with a couple buying a franchise business from an existing franchisee. They were super sharp individuals and had done their homework. We negotiated a solid asset purchase agreement more on stock purchase agreements vs.
When buying a franchise, there is a big extra moving piece.
7 Mistakes to Avoid When Buying a Business (An M&A “How-To”)
The buyer needs permission from the franchisor and the existing franchisee needs permission to sell , so there is the process of getting approval and working through the franchise agreement and the due diligence due diligence is the process of kicking the tires of the company you are planning to buy — reviewing their financials and contracts for assignment issues , searching for litigation and liens, and generally getting confirmation that the business you think you are buying is actually the business you are buying around the franchise disclosure document and talking to existing and former franchisees you want to talk to people other than the seller who may not be a great source of negative information given their desire to sell the business and get paid!
My clients were also getting an SBA loan, so there were a lot of things to manage to get to closing. We were a couple weeks away from closing and issues arose during due diligence — concerns we needed to work through, things we needed to understand to decide if the franchises were worth what my client was paying or even worth buying at all. My clients were very concerned about closing on time, to the point where they were willing to short change the due diligence process.
We had built that flexibility into our purchase agreement. The language we negotiated in the asset purchase agreement ensured we could take a little extra time to close without giving the seller a right to walk away.
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Of course, the seller and brokers would be a little disappointed and apply some pressure to close quickly they always want to close ASAP! When you are selling your business, when to tell employees that you are selling the company, and when to allow the buyer of your business to talk to your employees, is an important and often difficult decision. But, the seller should be as concerned as you, the buyer, to keep employees engaged and staying with the business post-closing or you will have the right to walk away from the deal assuming your purchase agreement is written properly to protect you as the buyer.
Plans are important — they set expectations and help guide decisions. So, plan, plan, and plan. These teams often impose their own complex steps and plans on the transition. While detailed plans are great, they should not be complex. Detailed and complex are too different things. What you say, though, should be simple sound bites. Where possible, keep your deal teams small. Groups of five or more people have difficulty setting their next meeting date.
Things will be challenging enough. Where possible, see if a competent individual or two individuals one from either side can handle responsibilities rather than relying on large teams or committees. Streamline where possible. Yes, more people equals more involvement and people want to be involved.
[Popular] Expensive Mistakes When Buying Selling Companies: And How to Avoid Them in Your Deals
Let them know they can approach anyone and ask any other questions — have an open-door policy. It will take forever to get it done. Analyze, discuss, make decisions and move — fast. And, keep moving. They will bog you down. With one contact person from each of the purchaser and seller, due diligence can be a relatively smooth process. However, when the seller and the purchaser have multiple people involved — the purchaser throwing questions and requests at the seller and the seller answering them and posting new documents to the online data room i.
Questions fall through the cracks and the organizational structure of the data room data rooms are online repositories of information about the target selling company can quickly devolve.
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