(Excerpt of the forthcoming book ‘The Road Beyond’)
Recently, many buyers with strong résumés in the corporate environment have come into the business-buying market. These buyers often have significant IRA or 401k accounts that can be dissolved tax free under current IRS rules, with the funds being used for buying a business. This has greatly expanded the market for business buyers in recent years despite the change in demographics for business owners.
However, Business buyers typically view any marketing presentation by a seller and his or her advisor with a healthy amount of skepticism when approaching the advisor firm that is representing the business for sale. A buyer’s perceptions often lead him or her to assume:
- The business is an under-par investment with an overstated market position
- The seller has misrepresented the financials
- There will be little consideration for the buyer’s confidentiality
- The seller is unmotivated or doesn’t truly want to sell
- The entire process is a waste of time
Ultimately, any actions or presentations by a seller reinforcing any of the perceptions above spell trouble for a deal.
In particular, the fear that the seller is not truly motivated to sell is of great concern to every buyer. No buyer wants to waste time, and more importantly money for accounting and legal advice, for a seller not serious in selling the business.
This lack of seller motivation can express itself in many different forms: no preparation on the seller’s part, lack of valuation, a poorly written prospectus, slow response times in providing due diligence information, a lack of interest in meeting, or dirty and unorganized facilities. The most significant issue is a long delay in answering to a full price offer. This is typically a dead give away!
However, ultimately, there are several motivating factors that propel buyers to move forward with a transaction, with the foremost one being cash flow and growth perspectives. There is no other factor as important as cash flow—or at the very minimum the prospect of being able to turn an operation around to generate a significant cash flow in the future.
Thus, in order for a transaction to successfully proceed, a seller has to show motivation, needs to demonstrate that the business generates positive cash flow, and the business needs to have good growth perspectives. With all three factors in place, a transaction will see ‘smooth sailing’.
About A Neumann & Associates, LLC
A Neumann & Associates, LLC is a professional mergers & acquisitions and business broker firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating and over 5,000 valuations performed through its affiliation, the company has senior trusted professionals with a deep knowledge base in multiple field offices in Connecticut, New York, New Jersey, Pennsylvania, Delaware, Maryland, DC, Virginia and North Carolina. The firm’s competitive fees are based on successfully completing transactions and all client contact is completely confidential. For more information, please contact A Neumann & Associates at 732-872-6777