A change of business ownership is always challenging. Many sellers are concerned that bowlers will find out their center is for sale and leave for a competing center. As a result, they may be unwilling to employ an experienced broker or to allow a potential buyer access to the building to adequately conduct an inspection. The seller’s tax returns may use creating tax planning that distorts the cash flow of the business, generally to their disadvantage. It is not unusual for a seller to wait too long before selling, leaving a number of problems that were created by the seller’s poor health or family issues to be solved by the buyer. All of these factors may have a negative impact on the sales price, which the seller is often unwilling to acknowledge.
Buyers can bring unrealistic expectations to the negotiations that make reaching an agreement on price challenging. Lenders often consider first time buyers to be too high of a risk to finance. One lender found that 80% of their loan defaults came from first time buyers. This concern may lead a seller to refuse an offer from an otherwise qualified buyer or for a buyer to struggle to find financing once a purchase agreement is signed. Potentially most challenging, industry data on comparable sales is difficult to find, leaving both buyers and sellers unable to negotiate based on accurate information.
Cash flow and trends are the most critical part of the due diligence for both a buyer and lender. Sorting out the real from the wishful thinking takes time and experience. In addition, cash flow to a CPA is not necessarily cash flow to a buyer or lender. Understanding the differences can make or break a deal.
Negotiating these, and other potential issues, may challenge the most experienced broker. Adding a lender to the equation may delay, or even kill a deal. Ken has more than twenty-five years of negotiating complicated transactions, many of which were distressed business sales. His negotiating, accounting, tax, and lending experience can contribute to turning an impossible negotiation into a successful one.