Business Transactions: You only get one shot

Buy and Sell transactions for business (often referred to as mergers and acquisitions) are a part of everyday life at firms like ours. But clients might only ever experience one or two business sales in their whole lives. We’ve been involved in large complex ones ($90m deals  with public companies) as well as small ones where there isn’t any goodwill at all.

Regardless of size or complexity, clients still have the same outcome in mind as any other entrepreneur setting out on this journey: to get the best deal for themselves, their business, customers and staff.

A major business transaction like merging, buying or selling should be approached as if it’s a journey – the key to success is negotiating the inevitable challenges on the way. Even though you will often have a clear idea of what you want at the end of the process, it is important to understand that getting there means ticking off many issues along the way. If you’re selling, your journey will produce the best results if you start preparation three to five years ahead, so you can build profitability and systemise your business. As the owner of the business, you need to make yourself dispensable, preferably so that your customers don’t even know who you are, and won’t miss you when you’re not there. That way, when you leave, they’ll stay. If you’re buying, you’ll need to spend significant time acquainting yourself with exactly what you are paying for. Like most assets, businesses are usually ‘dressed up’ for sale, but the due diligence process will establish a wider understanding of what you’ll end up with after handing over your cheque.

Build a Good Team Around You

Before embarking on a transaction, surround yourself with people who have been on the journey before. A good Mergers & Acquisitions lawyer is important. Business brokers and private equity firms can be helpful, but don’t overlook the fact that they’re usually paid according to whether the transaction proceeds, and based on its size. More ‘objective’ advice will come from your accountant. They’ll be unbiased about whether the transaction proceeds or not, and are usually a fraction of the cost of the asset you’re buying or selling.

Get the Details Right – Price First

Vendors almost always overvalue their business. A large part of due diligence is analysing the financial performance of the business, which gives you a good insight into how successful the business really is. If you’re selling, you need to understand what items can and can’t be excluded from the profit and loss account, and to articulate the value of the business. It’s best to get price negotiations out of the way as soon as possible. Then you can work on getting the other details right. For example, how many of the existing staff will stay? What role will you have in the future business? What trade restraints will be in place? What finance terms are acceptable? How will the assets be transferred? Remember, when goodwill is incorporated into a purchase price, there is no guarantee that goodwill under the old ownership will survive new ownership. No-one ‘owns’ goodwill, and just because you’ve paid for it, doesn’t mean you keep it. All you are doing is paying for the opportunity to own goodwill at a later date, if and only if you do a great job as the new owner post-purchase, and the customers of the business stay with it.

Agree your Role

Above all, the buyer and the seller need to have a really clear idea on what the new business will look like with the new owner. If you’re selling, you need to agree your role, if any, post-sale. This can be tough, because you are giving up something you’ve worked hard for. But if you don’t agree your role, then subsequent discontentment can result, which can kill the deal or the future business. The transition needs to be seamless, and your customers have to be unaffected. If your customers sense any problems they may go elsewhere, along with your goodwill. Buying, selling or merging a business can be extremely rewarding. As a business owner, you may only do it once in your life so you can’t expect to be an expert. Talk to your Accru accountant first and build a good team to help you on your journey – they’ll cost you only a fraction of the deal value and ultimately you often end up with more.

About the Author
Known for a direct approach that achieves results, James is often asked to assist outside of the direct responsibilities associated with partnership at Accru Harris Orchard. He is the South Australian representative to the Institute of Chartered Accountants Public Practice Advisory Committee and is on the South Australian Family Business Association (FBA) advisor group.
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