How Understanding Psychology Can Benefit Your Deals
We work closely with our clients to preserve the integrity of deals so that they have the best chance of a successful closing. An often-overlooked aspect of the process is understanding and embracing human psychology. In this article, we will explore some of the most common ways that psychology comes into play.
The Element of Time
It is critical that both buyers and sellers feel well prepared at every stage of the process. It is also essential that a certain momentum is established through every stage of the deal. When too many delays happen, this can start to derail deals.
Think about the Buyer and the Seller
For both parties, the buying or selling of a business is a life-changing event. For this reason, it is important that you invest the time to think about the point of view of the other people involved. No doubt, buying and selling can be stressful, so it’s important to take other people’s thoughts and feelings into account. You are not the only one who may be experiencing a little stress.
The Issue of Non-Active Partners
In some deals, non-active partners can pose challenges to finalizing deals. They often have different motivations than the seller who is in the role of running the business. In a situation where two sellers have divergent goals, it can pose a challenge to a deal. The best thing to do is to try to understand the point of view of each seller and help them both reach their respective goals.
Identify Influencers
Influencers and recommenders can have a powerful sway over both buyers and sellers. By influencers, this could mean accountants, lawyers, relatives, etc. In order for a deal to go through successfully, often these influencers must be identified and their viewpoints must be addressed. On a practical level, there are also other people involved that can interfere with a deal, such as landlords. It’s important to make sure that these individuals feel as though they will benefit from the success of the deal as well.
There are many moving parts needed to get to the finishing line. Human psychology plays a huge role in what decisions get made. It’s vitally important to take the time to consider what others involved in the deal might be thinking or doing. Your Business Broker or M&A Advisor will benefit you by getting to know all parties involved and taking the appropriate actions to ensure things are done to the satisfaction of all parties.
Copyright: Business Brokerage Press, Inc.
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6 Signs It’s Time for You to Sell Your Business
Entrepreneurship is a risky business. While starting your own business venture can be one of the most rewarding experiences in your life, it can also be one of the most stressful. The reality is that not all entrepreneurships are made to last, and only a handful of businesses truly stand the test of time.
With this in mind, it’s always important to know when to move on and sell your business. In some cases, a struggling business may not be worth holding onto. Or you could be offered an opportunity of a lifetime in selling. But the real question is, how do you when the time is right?
This blog highlights the top signs it’s time to sell.
1. Entrepreneur Burnout
There’s no doubt that owning and running your own business is a full-on experience. Not everyone is cut out to be an entrepreneur, either. It takes a certain type of motivation and dedication to make a true success of your entrepreneurial goals.
Whatever your reason is for burnout — whether you’ve given it your all and have nothing left in the tank, or want to pursue another type of career, you need to honor your fatigue.
What others see at surface level when you’re an entrepreneur is only the tip of the iceberg when it comes to running a business. If you feel like you’ve done your time working grueling, long hours, and managing stress, there’s no harm in moving on.
Knowing when to call it quits takes just as much gumption as it does to start a business. And when it comes to burnout, you have far more to gain than to lose when selling a business.
At the end of the day, owning and running a business should be a fulfilling and motivating experience. If it’s not, you may need to consider moving on.
2. Excessive Business Risk
Here’s a sliver of reality for you: up to 50 percent of small businesses fail in the first five years of operation. As depressing as that sounds, it’s the reality of how risky it is to start and manage a business today.
If you’ve made it past the five-year mark, you’re already ahead of the curve. But what happens when your business success starts to slow down? There may come a time when your business growth comes to a plateau and the risks begin to mount against you.
Do you soldier on and hope for the best? Or do you accept when it’s time to fold and sell your business? Ultimately, it’s no easy decision. But if your gut is telling you that there are too many heavy clouds on the horizon, selling your business in the right timeframe could save you from disaster down the line.
3. An Offer of Purchase You Can’t Refuse
In some cases, the opposite of the above might happen, and your business could grow from strength to strength over the years. You may have dedicated your time to growing your business slowly while operating with a frugal budget.
Often, this gives way to a business that increases in value and captures the attention of other entrepreneurs and business investors. To add to this, your business could fall into a particular niche that grows in popularity over time.
When you’re offered a decent acquisition price, you could walk away with a decent profit. Or, you could walk away with an incredible profit that allows you to begin a whole other business venture. In this case, this might be a good time to sell!
4. You No Longer Have the Power to Compete
It’s no secret that the world of business seems to change at the flick of a switch these days. With the advent of all things digital, this is where many businesses may find themselves unable to compete in certain industries any longer.
Most businesses today can no longer rely on the traditional means of running an operation. If your business has not been able to scale to the demands of the market and industry trends, you could find yourself lagging dangerously behind.
If this is the case, your product and services could become obsolete. As a result, you may not have the power to compete with local competition any longer. Your business model could crash and you may not be able to stay afloat.
While it may be a difficult pill to swallow, it’s crucial to face reality and know when it’s time to move on.
5. Your Own Aspirations Change
There’s no shame in admitting that a business you once had an undying passion for just doesn’t do it for you any longer. Your professional aspirations may change over time, and that’s normal.
On the other hand, you may also realize that you’re not cut out for a certain industry or even owning a business altogether. Whatever your personal situation may be, it’s better to be honest with yourself.
It’s also not the end of the world if you started a business and decide to sell it down the line. Think of it this way — it could provide you with some form of capital to pursue another professional venture.
6. The Circumstances of Life and Retirement
When it comes to business ownership it may feel like your work priorities consume all of your time and energy. While this is a common reality of owning a business, it shouldn’t get in the way of your family priorities. However, this is often easier said than done.
But, there may come a time when your personal circumstances change and your priorities have to shift. For example, a family member could fall ill and need your full attention. You could become a parent and your family will take top priority. Or maybe you’ve served your time in the business world and want to wind down into retirement.
There are a number of personal reasons and life circumstances that could spur the sale of your business. You are not a failure in this case. You have chosen to prioritize yourself and your family — and what could be more important than that?
Is it Time to Sell Your Business?
Making the decision to sell your business may be one of the toughest decisions you’ll ever make. It may feel like your life’s work is coming to an end, but in some cases, it could be the best decision you ever make, too.
If you’re in need of professional expertise on how to sell your business for the best price and on the best terms, then Fusion Advantage is your go-to. Selling your business for what it really deserves can make the entire process much easier to accept!
Learn more about our services, here.
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How to Achieve High Buyer Success Rates
Both buyers and sellers have a lot of emotion wrapped up in their respective decisions. It’s completely natural to feel that way. Business Brokers and M&A Advisors can assist clients with their concerns and fears by giving them more information about how the sales process works and also discussing common pitfalls to avoid. In this article, we’ll go over some of the various issues impacting buyers. If you are able to anticipate potential issues that could interfere with the deal, you’ll be more likely to be able to overcome those issues.
The Initial Intake Process
Buyers should understand that they will need to sign an NDA and treat the non-disclosure process seriously. Brokers representing a seller will be requiring a good deal of information, including financial details, and often even your resume. So don’t be surprised when you’re asked for this information. It’s all a normal part of the process.
The Lending Process
It’s important to realize ahead of time that the lending process can be slow. It is also very common for lenders to ask for more and more information before the approval goes through. If this happens to you, don’t panic or worry. This too is a standard method of operation.
Working with Lawyers
While lawyers are obviously necessary in the process of buying and selling a business, they can also be a source of anxiety. In their efforts to protect their clients, they also can often kill a deal. Of course, get the facts and logistical information that you need from a lawyer, but always remember that lawyers and other business advisors are not the decision makers. If you’re buying a business, the decision is ultimately yours.
The Non-Binding Offer
A non-binding offer allows both the buyer and seller to walk away from a deal if terms cannot be agreed upon in a set amount of time. A non-binding offer shows the seller that the buyer is interested in acquiring the business, but this form of agreement isn’t legally binding. The benefit of the non-binding offer is that it allows discussions and negotiations to move forward.
The Due Diligence Process
The due diligence process is another aspect that allows the buyer to move forward, while simultaneously having protection. At this point, the buyer will receive confidential and sensitive information about a business, such as the financials, inventory, and legal matters. Buyers will also have the ability to conduct additional research and ask the sellers questions. Like the non-binding offer, the due diligence process also means that you have the right to walk away. It is important to have this step available so that buyers can make the most informed decisions possible.
Business brokers and M&A advisors are essential in order to help buyers find the best fit. We not only save our buyers time and energy, but we also help to ensure that the transaction goes as smoothly as possible.
Copyright: Business Brokerage Press, Inc.
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10 Mistakes that Sellers Make
1. Not knowing what the business should sell for
One of the most costly errors a business owner can make is not knowing the approximate price of his or her business prior to entering the selling process. Although the marketplace ultimately determines the final price, an owner needs to know what the approximate price his or her business is prior to placing the business on the market. Before making the decision to sell, owners should work with someone qualified to place a price on their company.
An experienced business broker has both the technical ability and the market experience to produce the most realistic pricing opinion. The business broker will also be the only alternative for supporting his or her opinion by selling the business.
Fair Market Value
Asking Price is what the seller wants
Selling Price is what the seller gets
Fair Market Value is the highest price the buyer is willing to pay and the lowest price the seller is willing to accept.
2. Not preparing the business for sale
Determining the starting price point is only the first step. Prior to exposing the business to the marketplace, preparation is necessary. A business is certainly not a house, but the same attention to appearance prior to sale is necessary. Financial and legal affairs should be current. Anything a potential purchaser might want to see should be up-to-date, accurate and available for review.
Momentum is very important in business transactions and can make or break a deal. The constant need to develop information for a serious prospect will destroy momentum and with it, possibly, the deal. Demonstrating preparedness places the business in a favorable light and prospective buyers will feel comfortable that everything is in order. Being unprepared can delay a closing, create costly expenditures to play catch-up, and cause prospective purchasers to lose confidence in the deal itself. Too much time almost always works against the deal happening.
3. Not being able to see their business through the eyes of a buyer
This can be very difficult for any seller. It is only natural to see one’s own business in a most favorable light and overlook the blemishes or problems inherent in any business. Sellers have to approach their business realistically, knowing that a potential buyer will be doing the same. By recognizing the deficiencies of their business, sellers are in a much better position to deal with the concerns of the buyer. In fact, the best way to handle any potential problem areas is to bring them up in the very beginning.
4. Not really knowing the buyer
The better you know the buyer, the smoother the transaction. By knowing the buyers, their motives, their interests and their backgrounds, the better equipped a seller is to make informed decisions about whether they are the right people to operate the business. When final negotiations begin, knowing the buyers can help resolve some of the issues that will arise. Are their interests the same as yours? If you, as the seller, are financing the deal, do you feel confident that they can make the payments? The more you know about why a buyer wants to buy your business, the better position you are in to know when to be firm in the negotiations and when to be flexible.
5. Trying to sell the company to a buyer who doesn’t want to buy
There are usually many more potential buyers than there are businesses for sale. The question is — how serious are they? A buyer may indicate a great deal of interest but when it gets down to the wire, he or she may back out of the deal. Some buyers want to buy only on their terms and conditions, some may have too many decision-makers to please, and others only want to buy the “perfect” business. Wasting time on those who aren’t serious about purchasing a business takes away valuable time from those buyers who really want to buy.
6. Being your own worst enemy
Many business owners feel that no one knows their business like they do. They think they can do a deal by themselves. They don’t need, or want, any help. They think they are lawyers, accountants, business brokers and outside advisors all rolled up into one person. Then when the going gets tough, they become impatient and inflexible. They then blame others, usually the buyer, when the deal blows up. As the old saying goes: “The attorney who represents himself has a fool for a client.” The same could be said for the business owner who thinks he can sell his or her own business. Not using outside advisors, such as a professional business broker, is a serious mistake.
7. Not understanding the structure of the deal
Regardless of the size of the deal this could be the scenario: an offer is presented, the seller takes one look at the price, immediately says “no” and refuses to look any further. The price, within reason, is immaterial. The real crux of the deal is how it is structured. Consider the negotiating axiom “You can name the price if I can name the terms.” The terms and conditions are important. A seller may be ecstatic about price only to find that the devil is in the details.
8. Not being able to walk away from the deal
Too many sellers get so involved in trying to put a deal together that they don’t see the big picture. They don’t realize that the deal isn’t a good one. In other words, it’s time to walk away from the deal and go on to the next one. Many sellers don’t want to let the deal get away. Since they have invested a lot of time and effort, and probably expenses, it’s often difficult to just end it. However, in some cases that’s exactly what must be done. If the deal isn’t right, and can’t be fixed, there is no other choice. It’s much better not to do the deal than to do a bad one!
9. Waiting too long to sell
Too many owners wait until the last minute to decide to sell their business. They wait until business is down, or they are completely burned-out, or their business partnership has soured completely. The time to sell is before the emergency happens. The time to sell is when business is good. The time to sell is prior to when exasperation hits. The old adage is that a business owner should think about and plan the eventual sale of the business the day after it is started or purchased.
10. Changing your mind
The sale is progressing nicely, the buyer is happy and the seller well, the seller is contemplating life without the business. He or she realizes that when the business is gone, they will have nothing to do. The business has been a major part of their life for many years. Just before the closing, the seller decides that he or she can’t live without the business and the deal starts to unravel. Sometimes, seller’s remorse arises because a business acquaintance says the price was too low, or there isn’t enough cash involved or offers some other uninformed reason. If it was a good deal in the beginning, don’t let well-meaning outsiders influence the sale. And, if there is even a speck of doubt about selling the business, don’t begin the process. Wait until there is not one shred of doubt.
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Top Questions Business Buyers Want Answers To
If you are even thinking about selling your business, it’s important to know the questions that buyers generally want answers to. For example, the first question almost always asked by buyers is: If this is such a good business why is it for sale? How you answer this question can make or break a sale. A vague answer can discourage buyers from further consideration of your business, as they may assume the worst.
If you say you are “burned out” or just ready to try something new – that’s fine. If you’ve owned and operated the business for 10 to 15 years, buyers will most likely accept your reason for sale and continue their investigation. However, if you’ve only owned and operated the business for two years or less, a prospective buyer may find it concerning that you are already burned out or ready for something new.
If you’re sick, be open about what the problem is; otherwise buyers will think you are just sick of the business. The worst thing a seller can do is to fudge an answer or not provide a completely honest answer. Buyers will, most likely, see right through the given reason for sale and walk away. So, even if you really are tired of or just plain hate running your own business, be up front and explain why. Honesty is always the best policy.
It is also a good policy to engage the services of a professional business broker. Brokers have been through many transactions and can help a prospective seller deal with the reason for sale as well as the other questions a buyer may have. Here is a brief list of other questions buyers often ask and business brokers deal with all of the time:
• Why should I buy an existing business rather than start one myself?
• How are businesses priced?
• What should I look for?
• What does it take to be successful?
• What happens if I find a business I want to buy?
• Do I need outside advisors?
In addition, buyers often want answers to some more specific questions such as:
• How long has the business been in business?
• How long has the present owner owned the business
• How much money is the business making?
• Are the books and records readily available?
• Will the new owner help me learn the business?
These and many other questions are ones that business brokers deal with every day, equipping them to help you prepare honest and useful answers.
Copyright: Business Brokerage Press, Inc.
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