Whether you’re the buyer keen to purchase a business, or the seller wanting to exit your own, the offer is a critical stage for everyone.
And it can be utterly terrifying for first-time buyers.
You’ve done your homework and found a business that you want to buy. You’ve survived the first meeting, scoured their financial statements and asked all of the right questions.
There’s trust. You’ve both put a lot of work into making this happen.
… But there’s no acquisition without an offer. And so the dance begins.
Here are The Business Success Consultants’ top tips for both sides of the table during this stage.
If You’re The Buyer
Yes, it’s scary.
But remember, it’s YOUR offer. You, the buyer, assume by far the biggest portion of the risk in the business changing hands… it’s your money after all.
More Talk, Less Action
It’s valuable to have as many conversations with your seller as you can prior to drafting an offer.
The more you know about the seller’s reasons for exiting, how they’re valuing their business and their expectations around both of your post-sale responsibilities, the better.
All of this information will help you to structure a deal which puts the obligations and outcomes for both parties in plain view, reducing the chance of the deal falling through at the negotiation stage.
Working Out Your Offer
When figuring out what you’ll offer for the business in question, consider these four things:
- The percentage of the business being purchased. Even if you’re not buying the business outright, but rather joining forces with the existing business owner, you’ll still need to negotiate with them to make sure the terms of sale work for each of you.
- The proposed purchase price. Valuing a business is complex, with the most common method being to calculate EBITDA. You can run through one of our previous blogs all about valuing a business here.
- Your down payment. This is based on what you have the means to fund, not just what the seller wants. Don’t leave yourself cash-strapped! You still need to have enough working capital to actually run the business (and your personal life).
- Financing. Through what structure will you purchase the business? Deferred consideration, for example, is an alternative payment method that allows the buyer to defer some or all of the cost, and is increasingly common.
Get The Ball Rolling
Only by making an offer can you move forward with negotiations and reach a deal that works for everyone. You’ve got to start somewhere!
Prepare For Rejection
Initial offers get rejected all the time. Don’t take it personally.
After consideration, the buyer will likely come back to you with changes they’d like to make. If you’ve thought hard about how to structure your offer, you’ve hopefully also covered potential changes that can reasonably be made to the offer for this exact occurrence.
If You’re The Seller
This is it. You might be about to sell your business. Nevertheless, it can be a stressful time wondering whether you’ll get what you want for it.
Don’t Just Have A Figure In Mind
When selling a business you’ll likely already know what your ideal purchase price would be.
What’s also vital to think about is how you want the deal structured. What is important to you?
This way, once an offer is made, you can clearly communicate with your buyer about what works for you and what doesn’t.
Value Your Own Business
Whichever route you went down to market your business, it’s a good idea to conduct your own valuation of your business rather than work from a broker or other external company.
Because you need to make sure it’s a realistic number. Ever sold a property? The estate agent is likely to overestimate its worth. This excites you and hopefully achieves a higher sale price, and, surprise, they’re paid on commission. It’s the same story with business brokers.
No matter how keen your buyer is, you can’t expect them to pay an overinflated value. Not sure how to value the business you’ve worked so hard to build? We’ve written a whole blog to help you work out how much your business is worth. Check it out here.
Can’t Make A Good Deal Work?
News flash. You can walk away.
This stage can feel like a marathon. Negotiations thrown back and forth can really take their toll, especially if you’re getting nowhere fast.
If nothing else, try to remain objective. If this deal falls through, it’s okay. It happens. You’ll both find another route to get what you’re looking for if this isn’t it.
Struggling to put a good offer together? Finding it hard to satisfy your buyer? The Business Success Consultant can help. Book a call with Clive today for expert advice and take the stress out of the offer stage.