Whether you’re buying or selling a business, the “deal-making process” can be a complex and challenging one, especially for entrepreneurs who may only go through it once in their lifetime. A successful deal requires a mutual understanding of goals, processes, and timelines between both parties – otherwise, the deal may become a long, costly, and risky journey.
While there are quite a few factors that you need to be mindful of when making a business deal, here are our top are three strategies every business owner should keep in mind to ensure the deal making experience is smooth and successful:
- Communication is key.
Define your terms clearly and make sure to let the other party know about your expectations early in the deal-making process. This saves time and helps to avoid drawn-out negotiations (or missed opportunities with other buyers).
It is much easier to have all parties on the same page from the start. This extends to the way negotiations progress (having everyone in the room often helps avoid back and forth in emails). Clear communication early also helps to build trust and mutual respect, making it more likely both parties will continue to work together towards the final outcome.
- Preparation is key.
Preparation is crucial for a successful deal. When both parties are well prepared, it is easier to anticipate and acknowledge each other’s requirements, it is easier to prepare the necessary documents (Term sheets, Sale Agreements) and processes i.e. due diligence and financial audits can take place in a much smoother manner.
Ideally, a seller will know and will be expecting to prepare reports and other required information, they’ll anticipate the data and reporting on finances, assets, intellectual property, etc that will be asked for.
If you’re a seller, work with an accountant and/or an exit advisor early – before you approach the deal making process. They will help work with you to ensure deal structure is maximised for tax and optimised for value (along with the above). If you’re a buyer, make sure you have a thorough understanding of the searches and due diligence process.
- Knowledge is key.
Negotiating with buyers or sellers that are not well-educated in the deal-making process can be costly. They tend to be more risk averse, which can lead to cold feet when the deal room heats up. Ensuring you hire the right knowledge is one of the most important things you can do to ensure your deal is as smooth as possible.
A strong, experienced deal team should include advisors (legal and not) who know your industry and are well versed in the particular context of business sales and acquisitions (i.e. not just a generalist).
The knowledge that lies in your deal team can mean the difference between a deal falling through, or worse, a poor outcome post-sale. For example, their insights can help ensure you’re not agreeing to take on too much risk, that the value in a business isn’t lost after sale (eg it could turn out to be worthless due to missing contracts), and that a sale structure doesn’t result in a taxation nightmare.
Educating yourself is also critical. Understanding what to expect throughout the deal-making process and the common pitfalls can also help ensure emotions don’t get the better of you during negotiations.
Tip: Educate early – the best way to operate a business, in general, is in a sale-ready state and with a sale-ready mindset. You never know when circumstances might change and a sale might be necessary, and you also never know when a potential buyer might come knocking on your door (in many instances sales are not triggered by the seller but by a buyer)
There are some fantastic books, podcasts and other resources available for small business owners to upskill on what happens during a business sale (including our own) – see below for links.
While every deal is different, whether you’re a buyer or a seller, these three simple strategies ring true. Combined, they’re a recipe for a successful deal from the get-go and they make for a far less stressful deal-making experience.
If you are after some helpful resources – here’s our most popular picks for business owners getting started or upskilling on the knowledge front.
📖Buy Grow Exit (lucky you – click here for a bonus 20% OFF before 31st March 2023)
🎙️The Deal Room Podcast – be sure to subscribe to hear the latest tips, tricks and traps from buyers, sellers and business brokers.
Joanna Oakey, the author of Buy Grow Exit, is the founder and Managing Partner of the commercial law firm, Aspect Legal and host of the successful business podcasts Talking Law & The Deal Room. She brings decades of experience-based insights from working with business owners (and their advisors) on acquisitions, exits, and general commercial legal matters.
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