For an owner who was thinking about exiting their business, it almost seemed too good to be true when the phone rang. It was a business broker who had a prospective client that was interested in buying a business just like his.
This seemed like a perfectly timed phone call. However, the call started a chain of events that eventually put the business owner in a world of pain, just because he was not sure if the broker had the owner’s best interests at heart.
First, a headlong rush into a complicated process.
The challenge is this business owner had only just started thinking about selling his business and had done very little to prepare the business for sale. The business broker was able to answer a lot of the owner’s questions, in particular what his business was worth in the current market. It was a great call to get.
Excited and relieved, encouraged and optimistic, the entrepreneur quickly gathered all his data. This included trying to organize and make sense of his financials, put together a list of assets, customers and suppliers, pricing lists, rental agreements and more.
There was a sense of urgency and enthusiasm. The energy was high and, while not all the data was ready or absolutely accurate, the belief was the broker would be able to sort through it and present it in a way that made sense. It all seemed reasonable, right? Well not really, you see some of the information he provided he shouldn’t have made available when he did. First of all, it was ill prepared, and secondly, he hadn’t even had a confidentiality agreement signed.
Based on the information he had provided, the broker pointed out that the business was actually worth less than expected and based on the current market it was still considered to be a good deal. The seller was left angry, frustrated and disappointed.
Then, a number of realities hit home.
- The business broker was working for the buyer not the seller. The broker had a vested interest to help the buyer get a good deal.
- Rushing to prepare the financials, the buyer had not accurately portrayed how the business was actually doing.
- The lease agreement for his premises had only a few months left before expiring and because he was renting from a good friend, the deal for the new buyer was not likely to be the same.
- The owner had not really thought about how much money he needed to sell his business for or what his business was really worth.
- His business needed a little more work to make it saleable on his terms.
These are just a few of the things that became apparent. Luckily the seller’s accountant picked up that it was not a good deal and strongly advised the seller not to accept the offer. A few months down the line, his business started looking more attractive to potential buyers. Knowing that there is nothing better than having a number of interested parties coming to the table, he is now in a better position to negotiate a much better deal.
Always be clear who someone is working for. A great way of doing this is to understand explicitly how they stand to benefit from the advice they give you.