Providing information vital to a successful business sale
Content provided by a guest contributor.
One can understand the hesitancy of business sellers to provide confidential information to prospective buyers, but at the same time need to realise that the quality of information supplied will eventually determine the price paid.
One of the bigger concerns of sellers is the fear of buyers on ‘fishing trips’ – having obtained signature to a well constructed confidentiality agreement (best to arrange for an attorney to compile one), sellers need to establish upfront whether the buyer:
- Has begun the process of matching his own skills with those required by the business itself
- Has the financial means or has already approached his bankers regarding any funding required
- Understands what it would take to run the business
- Is flexible and decisive
Initial negotiations between buyer and seller are not of course one sided, so the buyer should try and determine whether the seller:
- Has verifiable historical information and a good idea as to what the future holds
- Has tax records for at least the past 3 years
- Is requesting a disproportional upfront payment relative to the total price
- Is flexible and decisive (and of course serious about selling!)
Should buyer or seller have concerns during preliminary discussions, caution needs to be exercised. A fishing trip can be disastrous for a seller and a buyer needs to be aware of a seller painting too rosy a picture – either way, the risks need to be considered carefully.
Notwithstanding the above, sellers do need to attract suitable and qualified buyers via a carefully documented marketing report which provides, initially, a broad overview of the business without too much in depth information – this document must serve as a marketing tool to attract buyers only and once initial discussions and confidentiality agreements have been concluded, a more detailed analysis of the business would be provided.
Great care should be exercised in compiling a detailed report on the business as it could well determine whether a business sale is concluded efficiently and to both parties satisfaction – if necessary, seek the help of someone experienced in this area.
As a minimum, ensure it is well written, no typos and no grammatical or spelling mistakes. If properly prepared, a buyer would be able to establish whether the business suits his/her needs, is within his reach financially and meets his skills set.
Selling a business should be a ‘two way’ street, and if handled properly, will result in both parties achieving their respective goals.
Barry Wiseman is a director of the IQUAD Finance Solutions (Pty) Ltd who provide business development services, assist business owners raise funding & secure equity capital. See www.iquad.co.za and www.bwifs.blogspot.com