Making Successful BUSINESS ACQUISITIONS
The true benefits of a good Buy-Side Business Buyer Broker/Advisor:
•To find business owners who are truly motivated to sell
•To find the RIGHT business to buy
•To prevent a client from over-paying for a business and/or buy the WRONG business
To do so, a Business Buyer Broker/Advisor must be: 1) completely unbiased and is working for the best interest of the buyer, 2) experienced with small business acquisition from the buy-side, including financial due diligence and business valuation, and 3) analytical (sell-side experience tends to be more “sales”, while buy-side experience is more “analytical”) These are three traits that most Business Brokers/Advisors don’t have.
What Can a Buy-Side Business Broker/Advisor Do For You?
As a business buyer, you may have already worked with a Listing Business Broker. The Listing Business Broker represents the Seller’s interest in selling the business with the goal of getting the highest price. Although the Listing Broker may appear to be very helpful to a buyer, there is a significant conflict of interest between the Listing Business Broker and the buyer.
A Buy-Side Business Broker/Advisor can help the buyer buy the RIGHT business. As such, the Buy-Side Business Broker/Advisor can:
Find the RIGHT business. According to industry statistics, over 95% of the people who try to buy a business NEVER do! The best way to make sure that you will be successful in the business is to be certain that you buy the right one.
•A Buy-Side Business Broker/Advisor can provide you access to business owners who want to sell their businesses, and help you evaluate those businesses to determine which one(s) are the RIGHT business for YOU considering your interests, skills, experience, contacts, and financial resources!
Provide a buffer between you and the Seller and/or Listing Business Broker. Since all communications between the buyer and Seller/Listing Broker is used by the Seller/Listing Broker to negotiate a higher price, it is always best for a Buy-Side Business Broker/Advisor to help plan exactly what will be communicated and/or handle some of the key communications.
Valuing a Business. Whatever the asking price, or what a seller thinks their business is “worth” rarely has anything to do with its value. A Buy-Side Business Broker/Advisor can provide a business valuation that will provide you with an acceptable return on your investment. (i.e. not overpaying for a business)
Negotiating a Great Deal. A buyer can pay less than the business valuation. The terms of an acquisition deal are sometimes more important than the price! A Buy-Side Business Broker/Advisor knows what deal terms are usually and customary in a business acquisition, andcan provide guidance in negotiating strategy.
The Paperwork is Astounding. A business acquisition requires a tremendous amount of coordination document chasing. Data will be needed from the seller for the evaluation, valuation, due diligence, and required to close on the deal. The Buy-Side Business Broker/Advisor will be an enormous help in determining exactly what information is needed, coordinating, and following up on all document requests.
Due Diligence. Due diligence is probably the most critical stage in the buying process. Many prospective buyers incorrectly identify this period as strictly a financial review, but it goes far beyond that. Due diligence encompasses a far greater project - that being the complete investigation and review of the business.
•A Buy-Side Business Broker/Advisor can help: 1) organize the due diligence 2) gather all the information, and 3) analyze it; so that you learn the intimate details of the business. The goal is to identify the strengths, weaknesses, pluses, minuses, growth opportunities and areas of concerns. A Buy-Side Business Broker/Advisor can prevent you from either: 1) not be able to pull the trigger and complete the transaction since you’ll be uncertain about too many components of the business, and 2) buy a business without a though understanding of the business.
•Buying the WRONG business is often financially devastating to the buyer. A Buy-Side Business Broker/Advisor can, and should, recommend that a buyer not buy a particular business (and why) when it is the WRONG business.
Why a Buyer Should Not Pay Their Buy-Side Business Broker/Advisor a Commission That is Contingent, and Only Payable IF The Deal Happens?
While a Listing Business Broker appears to be helping the buyer, in reality, many buyers have said that they didn't feel that the Listing Broker was actually helping the buyer. Instead, by the time a deal closes, many buyers feel that the Listing Broker only had the seller's interests at heart. If a buyer doesn’t have a Buy-Side Business Broker/Advisor, the buyer is more likely to: 1) not close on the acquisition because by the time the deal should close, the buyer feels too much uncertainty, or 2) overpays for a business.
To buy the RIGHT business, a buyer should have a Buy-Side Broker/Advisor who is completely unbiased and is working in your best interests.
A Buy-Side Broker/Advisor can either: 1) receive a commission from the seller only if the deal closes (co-broker with the listing agent), 2) charge a percentage commission to the buyer that is payable only if the deal happens, or 3) charge an hourly fee and/or set fee to the buyer that is paid for services and is not contingent upon the deal closing.
A Buy-Side Broker/Advisor who receives or charges a commission may not be unbiased and is not working in your best interests. Do you really want to use an advisor who has a conflict-of-interest with you because that person only gets paid a commission if the deal happens? Should a Buy-Side Broker/Advisor get paid a commission if they did not prevent you from buying the WRONG business?
By charging fees for services, I provide impartial advice to help make sure you do not make a mistake (on likely, one of the largest transactions you will make).
If a Buyer Broker/Advisor charges a commission that is contingent, and only payable if the deal happens, can you really trust this broker’s/advisor’s advice? Is the Buy-Side Broker/Advisor going to guide you to buying a particular business just because the broker will be paid?
Will the broker who is only paid a commission IF a deal closes:
•Recommend you buy a particular business even if it is the WRONG business for you?
•Suggest a higher offer price because it makes a deal more likely to close? (Even if a correct valuation does not support a higher price.)
•Fail in the due-diligence to be performed? (Because a failure in due diligence may not allow the buyer to identify potential problems or concerns to: 1) allow the buyer to renegotiate a lower price, or 2) stop the buyer from buying a business that the buyer really should not buy.)
•Fail to recommend that a complete due-diligence be performed?
•Fail to point out the missing steps of a complete due diligence investigation that should be done?
•Fail to point out potential areas of concern that should be looked at?
•Fail to help identify weaknesses and areas of concern?
•When area of concerns are identified, will the broker minimize the importance of those weaknesses?
How Business Development Solutions Charges For Services
I provide buyers peace-of-mind in the acquisition process that they are getting unbiased advice
and I am working in the buyer’s best interests.
I provide Fee based and Hourly Consulting.
Different Buyers have different consulting needs:
Few Hours: Some buyers just need a few hours of advice because they have questions such as the following:
•“Can you give me advise on how to best contact business owners to see if any are interested in selling for a fair price?”
•“I have a number of businesses that I found that are available for sale. Can we quickly review these so I get a second opinion on which ones I should look more closely at, and which ones should be eliminated?”
•“Can you attend a meeting (in person, conference call, or Zoom meeting) with the seller?”
•“I don’t understand the seller’s financials. Can you pick apart these financials to evaluate and to identify concerns?”
•"What is a reasonable valuation and what should by my initial offer to a seller be?”
•“Can you prepare a draft Letter Of Intent for this particular business so that it is both structured to protect me and increase the likelihood that the acquisition is financeable?”
•“Here is the seller’s counter-offer. What should I do?”
•“The seller’s asking price is high because I expect the seller doesn’t know what his/her business is worth. Can you explain our valuation to the seller, so to educate the seller as to why our offer is a fair offer?”
•“Can you provide a due-diligence list for this particular business?”
•“I have done the due-diligence and have found the following areas of concern. What should I do… renegotiate?”
•“I need to maintain good relationships with the seller. Can you be “bad guy” in the negotiations.?”
•“I think the deal is “cratering” and I don’t know what to do to bring it back. What can you suggest?”
•“The lender needs a business plan financial forecast. Can you review the forecast I prepared before I give it to the lender?”
•“My attorney doesn’t understand the business I am buying very well. Can you review the legal agreements so to identify changes to the agreements that my attorney should make?”
•“We are just weeks before the deal closing, and the seller is thinking of backing out of the deal. Can you talk to the seller about his/her “seller’s remorse”?
More Hours: Some buy-side clients often need more hours because they have questions such as the following:
•“Can you contact the business owners in this list of companies I am providing to you to see which ones have an interest in selling?”
•“I don’t have the time or expertise to coordinate the entire due-diligence process. Can you help?”
•“Can you do the due diligence review of the financial information (or of some particular area)?”
•“Can you prepare the business plan monthly forecast that is required by the lender for my review?”
My fees are inexpensive when compared to the cost of buying the WRONG business or overpaying for a business.
My assistance can be invaluable if it allows you to buy a business that you may not have bought without my assistance.
For more information about how to make successful business acquisitions and my services, download more information (PDF).
Call to find out more about how we can help you make sound, profitable acquisitions.
Business Development Solutions
Jay Whitney, President
Download the PDF document