How to achieve a successful business sale or purchase

Posted by James Price | JPAbusiness on 01-Sep-2021 02:00:00

Construction workers on building site

Based on our years of business transaction experience – and successfully making a match between many buyers and sellers – answering ‘yes’ to the following questions is critical to setting you up for a successful business transaction:

        1. Price – Is the price market-related and does it reflect the value a willing buyer, under the circumstances of the sale transaction, will perceive as fair?

        2. Facts – Are the facts on the business or opportunity clear, unambiguous and relevant to the risks, issues and opportunities the risk-taking party will likely perceive in making the purchase? Have these facts been collated and presented in a professional Information Memorandum/Business Profile?

        3. Representation – As a business seller or purchaser, do you have the right representation to qualify the opportunity, risks and issues? Does this advisor understand your business, industry, needs and objectives sufficiently to be able to guide and facilitate a negotiated outcome that makes a lasting match? 

 

How to ensure you get good advice when buying or selling

A few years ago we worked on a business sale transaction in which one side had far less robust advice than the other – you can guess which side was which!

Our client – the vendor – was selling a reasonably large, engineering-style business.

The purchaser – while a successful business operator – was not experienced at acquiring businesses and did not appear to have thought deeply about the sort of expertise they would need to advise and guide them.

The transaction proceeded, however, on reflection I feel the purchaser had deficient advice from a range of perspectives, including:

  • financial
  • accounting, taxation and business structuring
  • legal.

I estimate they would have paid at least $30,000 in fees for this sub-optimal advice.

They also endured a lot of stress and had to focus a lot of time outside their existing business trying to corral their advisors to get the deal over the line in a timely and cost-effective fashion. 

A good deal suits both parties

Our client – the vendor – enjoyed a successful sale, albeit there was a fair amount of stress as the impacts of communication dysfunction impacted the back-end of the sales process.

We, along with the vendor's accountant and solicitor, provided robust advice regarding protecting their risk, and ensuring an optimum amount of cover in terms of the tax and transitionary impacts.

But, ultimately, a sweet deal is one that suits both parties and, while we achieved our aims for our client, I can’t help reflecting on where the purchasers ended up.

 

diving board

 

Why a business sale is like Olympic diving

The best sale outcome isn’t always related to achieving the highest or lowest sale price (depending on which side of the transaction you’re sitting on).

Making a match between the buyer’s and seller’s goals is about degree of difficulty – just like diving.

Maximising value (for all) is about finding that neat alignment between difficulty, precision, execution and overall delivery; ensuring the approach is smooth, the execution is seamless and there is limited splash on entry!

It’s that unique situation where ‘positive tension’ is created when there is a win-win result. The most difficult dive (e.g. an above-market price) is not necessarily the best outcome, but nor is the least difficult dive (e.g. receiving all the proceeds upfront).

And, finally, striving for a gold medal (e.g. highest price/lowest price) doesn't necessarily make you a winner. A bronze (e.g. fair price and equitable terms) could be the optimal outcome, in terms of the value, terms and conditions, and the likelihood of a successful transaction.

If you’re looking for the right representation and advisory services on either the sell or buy side of a business transaction, we would be pleased to help. Contact the team at JPAbusiness on 02 6360 0360 or 02 9893 1803 for a confidential, obligation-free discussion.

 

Selling a Business Checklist | JPAbusiness

 

James Price 2018 smallJames Price has over 30 years' experience in providing strategic, commercial and financial advice to Australian and international business clients. James' blogs provide business advice for aspiring and current small to mid-sized business owners, operators and managers.

 

Topics: Buying a business, Business transfer, business advice, selling a business, Business advisor, business broker, James Price, JPAbusiness, Parramatta, Central West NSW, business sale, transaction advice, business sale transaction advisor, selling my business

 
Disclaimer: The information contained in this blog is general in nature and should not be taken as personal, professional advice. Readers should make their own inquiries and obtain independent, professional advice before making any decisions, taking any action or relying on any information in this blog. 
 
 

 

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