BUYER/SELLER INTERACTION

In the last Blog post, I asked the question…”why do you need a business broker, to sell your business? “
The following explains the normal interaction between a buyer and seller – and how the broker is an added value service.
In a typical scenario a buyer is pushing hard to get as much info as possible…….” I want to do a due diligence before I make an offer..”
Well, sorry, but that’s not how it works. Do you really expect a seller to expose the IP of their hard won business….
Two basic and key principles are at play;
1. The Broker represents the interest of the seller, first and foremost. Not negotiable. It is the duty of the broker to protect the integrity of the business and apply the right process – and ensure that the seller’s interests are not compromised. This is a moral and legal imperative.
2. The seller must also act in the same spirit of the relationship.
a. The seller must not be dragged into any unnecessary disclosure or agreement, by the buyer. The broker must always handle this aspect of the process; and safeguard the sellers rights.
b. If a buyer expects any disclosure from the seller, the buyer must also offer some reciprocal commitment. Quid Pro Quo.
c. You like? You want to buy? So, make a formal offer!!
d. There are no “test drives” here!
3. So how should the process work….simple!
a. There is a mandate that shows key financial info. This info is taken at face value as being a true reflection of the performance of the business. The mandating broker has tried to ensure, as far as possible, that the info is accurate and correct.
b. The buyer sees this. Decides to see the business and meet the seller. Conversations take place around the business and the buyer will arrive at a decision to proceed ( or not). The buyer accepts the mandated figures as being accurate.
c. An offer to purchase is made, with terms and conditions, as well as Suspensive conditions, to be presented to the seller and to be agreed by the seller.
d. At this point both parties are now fully committed to the successful completion of the sale of the business.
e. The due diligence/discovery takes place.
i. The accountants meet and dig through the detail. And verify the initial numbers.
ii. The buyer meets with key role players in the business; staff, suppliers, landlord and maybe even customers.
iii. There may be some minor issues that arise that then have to be resolved by negotiation. The deal carries on.
iv. There may one or two material issues – these are issues that significantly affect the value/price and or performance of the business. And therefore may be construed as “ a misrepresentation by the seller.”
v. In this case
 Negotiate a mutual settlement and carry on.
 Or, the buyer can walk away and receive a full refund of deposit.

4. If the seller chooses to ignore due process and starts to negotiate with the buyer and various agreements start happening, then the broker must step aside and disengage. The broker cannot be party to/held liable for, proceedings that the broker has not had a material direct influence over.
a. The downside for the seller is that they will be left to juggle the pieces. And the potential for a collapsed sale, is huge.
b. The broker is fully entitled to immediately issue an invoice for commissions and demand immediate payment – irrespective of a successful sale, or not! Bad place for the seller to be!
5. If a buyer starts putting undue pressure/demands on a seller, trying to change the conventional process – and offers no reciprocal commitment – I would view that as “ introducing onerous and unfair conditions..”, almost tantamount to acting in bad faith – or even suspicious.
6. So, be careful seller.
The old saying is “ let the buyer beware!”
I say, “also let the seller be aware..! “



So why do you need a Business Broker?
I get asked this all the time when someone wants to sell. Cannot seem to see any value in the 10% commission a broker will earn.
 Especially one who works for a Brokerage that is the oldest in South Africa, has a code of conduct and strict ethics. And whose brokers are all registered and hold fidelity fund certificates.
 The company that has set the context that all others follow by default.
 The company that has defined and refined the processes and procedures………and I could go on ad nausem!!

So, lets not try and over-intellectualise the answer…short and sweet;
 As a seller or buyer you want a confidential experience.
 That the business represents FAIR VALUE to both parties. The valuation process is tried and tested over nearly 30 years…your accountant/lawyer, cannot make the same claim! And we mandate over 300 businesses a year and sell even more…..makes you think!
 Quality of the process.
 No scams and wasted time. I have just been at the forefront of stopping a seller being scammed – we all know that South Africa now has some world class crooks. At all levels of our society.
 You want to know that the broker has access to a quality data base of diverse opportunities.
 It take about 46 hours to complete the circle – as an individual, do you even have a vague idea of what it takes?
 As a seller why take a chance with the equity and reputation of your business you have grown with blood, sweat and tears?
 As a buyer, why waste your time chasing phantoms – and run the risk of destroying the hard earned cash you used to buy your business?

Then the next question………why 10% commission. “Estate agents earn much less.”
Shame…yes, but they do less and the process is much simpler.
To mandate a business to sell and to be able to represent that business legally, requires that the broker undertakes an extensive review of the financials and activities of the business.

Houses sell on
 Perception of the value of the property.
 The “internal” needs of a family.
 Supply and demand in a given area.
 Sensitive to money supply.
 Equity growth depends on improvements made by spending capital…for which there is no return, until the house is sold.

Businesses sell because
 Reality of the inherent value of the business.
 The locked in value of unleveraged assets.
 There are specific calculation models used to explore the real value of a business.
 There are books of account and balance sheets that clearly state the health and position of a business.
 A business has tangible assets, customers, brand identity and many other market driven attributes.

Seems all to logical to me!

Contact: Kevin on 082 553 0884. Email: kevinjfoot@vodamail.co.za