12 Laws of the Business Buying and Selling Jungle - PART II
Jungle Law #7: If A Seller Really Wants To Sell, You Probably Shouldn't Buy!
Whenever you look at any business for sale, you should approach the situation with a great deal of caution. You should make it your business to verify all of the facts possible about the business, including determining the reason for sale. There are some very good motivations for sellers to sell and other ones that are not so good. Usually, the best reason for a sale from the buyer's perspective is the planned retirement of the owner or a sale necessitated by illness. By far, the best potential purchase is a long-standing single-owner profitable business where the owner is approaching (or at) retirement age and is generally reluctant to sell but realizes that he eventually has to.
Jungle Law #8: 99% Of Potential Business Buyers Never Buy A Business!
This alone may be reason enough for a seller to retain a business broker to represent him in selling the business. A professional broker knows how to sort through the many non-qualified potential buyers to get to the few who actually do have the means and motivation to buy a business. Once the unqualified potential buyers have been culled out, still only somewhere around 50% of these folks eventually buy a business. For this and many other reasons, I strongly recommend that sellers use a professional business broker to represent them in selling their business.
Jungle Law #9: Always Assume There Are Skeletons In The Closet!
Most businesses have some negative feature(s) that the seller will be reluctant to talk about. You can be sure that any problems will come out later as buyers begin analyzing the business (due diligence), and it could kill the sale if the problems are perceived as cover-ups. This is because buyers will ask themselves (logically) "if they hid this fact from me, what else are they hiding?" If the negative aspect(s) is clearly presented and discussed with the buyer, it may not be a serious problem because the buyer may feel that it can be overcome, avoided, or changed. The seller should strongly consider this and determine all of the possible negative factors that could affect the sale of the business. If the problems are very serious and non-correctable, the business may not be salable.
Jungle Law #10: Someone Will Always Get Cold Feet Just Before The Closing!
Closing the deal is always difficult, but usually the shortest part of buying or selling an operating business. After all, the valuations, investigations, and negotiations are complete and now it's a matter of getting everything into writing in a form that satisfies everyone so that the transfer of ownership of the business can take place. However, you can definitely count on someone getting cold feet just before the closing. Be prepared for this! The seller and buyer may both start to wonder if they are really getting a fair deal. The best way to get ready for this is to anticipate it happening and then to deal logically, reasonably and unemotionally with it at the time.
Jungle Law #11: Negotiations Must Stop At The Signing Of The Purchase And Sale Agreement!
Once the Purchase and Sale Agreement has been signed by both the seller and buyer, there is an excellent chance that the sale will actually take place. But, there must be an end to the negotiation process or things will begin to unravel. The deal at this point is like a house of cards with many parts of the negotiated deal contingent on another part. Trying to reopen negotiations after a Purchase and Sale Agreement has been signed will most likely lead to a collapse of the entire deal.
Jungle Law #12: After Buying A Business, Do Not Change Anything (At First)!
Of course, this doesn't hold true if you're buying a turnaround situation; but in general, if the business you are buying is profitable, leave it alone while you learn how to manage it in accordance with the status quo. One of the experiences I have had that best illustrates this point is as follows: One buyer of a fast food chicken franchise soon after the closing changed meat suppliers because he found that he could get the chicken at 10˘ a pound cheaper. What the new owner did not realize was that these chicken pieces were 25% larger than those provided by the original supplier. The problem with this is; the franchise doesn't sell chicken by the pound; it sells it by the piece. The new franchise owner completely wiped out his profit margin by paying a smaller price per pound but delivering to the customer 25% more chicken at the same retail price!
About the Author
Russell L. Brown, Business Broker, MBA, author of Strategies for Successfully Buying or Selling a Business! This book covers in detail such topics as Working With a Business Broker, Buyers Finding Sellers, Sellers Finding Buyers, Valuing a Business, Accomplishing Due Diligence, Conducting Negotiations, Closing the Deal, Working With the Deal Killers, Finding the Skeletons in the Closet, Example Purchase and Sale Documents, and much more.