How to Find and Buy a Business, Step 5 of 5, "Close"
Jay Carter
Pre-Transaction M&A and Capital Raising Consultant | Business Valuation | Exit Planning | Strategic Planning | Enhanced Valuation & Marketability | Reduced Risks for Successful Sale or Capital Raise
As I discussed in the previous editions in this series of The MarketView Minute, there are 5 steps to finding and buying a business.?They are:
For Step 1, Define, we discussed carefully defining what it is you are looking to buy.?
For Step 2, Discover, we discussed creating an expansive Initial Target List of potential acquisition targets.
For Step 3, Connect, we discussed how to connect with potential acquisition targets.
For Step 4, Concur, we talked about reaching a written agreement with one acquisition target to move forward with a transaction.
Now it’s time for Step 5 ("Close"), the last in our five-step process.?At this point in the process, you have executed a Letter of Intent (“LOI”) with one of your acquisition targets.?If the buyer and seller are both ethical players and are acting in good faith, both parties are committed to working hard to get the transaction described in the LOI closed within the timeframe specified.
Sounds like a slam-dunk at this point.?You and the seller have fallen in love, you have both signed an agreement to get married, and now it’s simply a matter of the formalities at this point, right?
Wrong! ?
This step in the process is where most transactions crash and burn.?It is where stress goes way up, energy begins to wane, and patience wears thin.?Why is this?
The Closing step involves two major functions: 1) Buyer Due Diligence, and 2) Closing Documentation Preparation.?Buyer due diligence is the moment of truth for the seller.?
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Buyer Due Diligence.?Buyer due diligence is the moment of truth for the seller.?As I discussed in my How to Sell a Business series, most sellers are unprepared for the rigors of a buyer due diligence process.?And, as result, sellers are under a tremendous amount of pressure to provide and create a shit-ton documentation and data to the buyer.?Some of this may be easily produced, some may be extremely difficult (or even impossible) to produce.?Buyer due diligence naturally places the seller in a vulnerable and often defensive position.???
Closing Documentation Preparation?This may appear to be a routine matter that the buyer’s and seller’s lawyers take care of.?The lawyers are definitely driving the actual preparation of the documents, but what goes into those documents should be driven by the buyer and seller.?The closing documents must reflect the business deal that the buyer and seller are in agreement to—after the buyer’s due diligence is completed.?And, as a result of surprises or negative findings during buyer due diligence, the buyer and seller may have to renegotiate the terms of the LOI before closing documents can be prepared.?The closing document preparation often turns into a tedious exercise that may involve splitting a few (or a lot of) hairs by both parties.?This is why it is so important that both parties are 100% committed to getting the deal closed early in the process.?
That’s it for the series in which we covered the How to Find a Buy a Business, and the 5 Step Process. Our next series will be on one of my favorite topics: "Taking the Emotions Out of the Sale of Your Business".
In the meantime, if you have questions or would like to discuss your unique situation, please scan this QR Code to download my contact information and feel free to reach out anytime.?Thank you!????