Business owners hold something of value — ownership in a business. And, in the life of an owner, there typically comes a time when he/she becomes willing to part with his ownership in exchange for some things he/she values. Typically, the thing of value is money. But in every deal there are many deal points. Many more than just money.
The biggest mistake buyers make is definitely overpayment. It can be heartbreaking. Just last week I met with a former client we helped sell out. He understood the value of skilled assistance, we worked the proven process and he made a lot of money. He then turned around and vastly overpaid for another business (he didn’t use my firm) and he’s really struggling right now.
It’s a shame. Business owners just don’t understand that how a business is sold has as much to do with the eventual value obtained (“sale value”) as the characteristics of the business itself. They naively think their business has a certain value and all they need to do is start talking to buyers. They think it’s like selling a home. It has a certain value and as soon as the right buyer comes along, a deal will get done.
Seller financing: Not only does seller financing help minimize the equity required, it provides ready and meaningful recourse in the event the seller breaches duties, obligation, representations or warranties. Try to get “right of offset.”
Assets, not stock: Buying stock is risky. A foolproof method for reducing risk is to buy only assets. Asset purchases also reduce taxes.