Reduce Business Risks When Buying a Business in California

Reduce Business Risks When Buying a Business in California

January 19, 2016 by Andrew Rogerson in Buy a business

You might be asking: how to reduce risks in a business purchase process?

Make sure that you’ve thoroughly prepared your due diligence for a structured, competitive transaction process, and ensure that the window of vulnerability is as short as possible.

Window of Vulnerability

Throughout your interaction with a potential bidder right up until the sale is closed, there’s what is called a window of vulnerability where you and your business are exposed to inevitable risks. Because of this, you want to shorten this window as much as you can. To do so, consider these strategies to mitigate these risks and execute a sales process that exposes your business for the shortest amount of time possible.

Be Ready For Due Diligence

Regardless of whether your business has just one bidder or many, it’s crucial to prepare comprehensive due diligence information. It’s best to provide this information in a format that can be easily reviewed by your bidders’ due diligence staff. Failure to make ready complete documentation will raise numerous questions by the prospective purchasers. Information that is incomplete, incoherent, or internally inconsistent will mean additional information requests to provide clarifications—and to do so ASAP!

If this is the case, your due diligence preparation can become disorganized and reactive, which may not show your business in the most positive light. No one can predict everything that a bidder may request, but a carefully and thoroughly prepared compilation of your data will be worth the time invested beforehand. This is where a knowledgeable and experienced business broker can help you organize and collect data, as well as ensure secure and efficient dissemination of your business information to bidders. This will speed up the process of due diligence and minimize the risks during your window of vulnerability.

Competitive Tension

Competitive tension among multiple bidders is a good thing. This gives you some leverage in considering a strategic choice, while also diversifying any buyer-specific completion risk.

There often are some in a competitive process who see more value in your business than others. With a controlled, competitive process between the best potential purchasers, a sense of urgency for them to move quickly may develop and outbid the competition. In this way, you can realize a greater value for your business and also have the benefit of an accelerated transaction process that’s powered by the competitive pressure of the bidders.

Give Your Bidders Clear Deadlines and Instructions

Don’t give your bidders an exact timeline that details the sales process from start to close, as you want to have the leverage to adjust their expectations and dictate the terms of the negotiation as much as possible. But if you give your bidders clear expectations as to deadlines and any specific instructions, you will be able to maintain the pace of the process and minimize extraneous miscommunications and efforts.

Make these clear next steps for bidders several weeks out, including realistic deadlines. Make sure you hold them to these dates. Make certain that all process requirements are defined, particularly those that deal with communications. Give each bidder a memo that memorializes the comprehensive process and clearly states the requirements for a bid to be considered. These requirements can modulate the flow of information so that only the most serious parties receive your most sensitive information. This type of culling process also helps your team’s efficiency with some of the more labor-intensive aspects of the due diligence process.

Work with a Professional who does this for a Living

Just like you should never swim alone, moving through this process without a qualified agent can make this exercise stressful and drudgery, and you may start to sink. You need someone to help you.

Engaging a business broker who is experienced in the sale process will be a lifesaver. A broker who focuses on private equity transactions will prove invaluable and can help you minimize transaction risk throughout the sales process. A business broker will give you important insights about how to reach the right set of potential buyers and, at the same time, minimize execution risks and potential information leaks. They’ll be able to facilitate an efficient transaction process by pointing out and helping you address potential problems with a deal beforehand.

If you would like more information about buying a business, please visit our website Buy a business, or buy a copy of my book Successfully buy your business.

Avoid Business Risk With Real Estate in California

No real secrets to buying a business. Running your own company lets you lead an organization, make impactful decisions, and enjoy the flexibility that allows you to work in a way that best fits your needs. By purchasing an enduringly profitable, slowly growing firm, you can combine the opportunity for professional independence with the stability of buying an established and profitable small business.

You’ll have many questions to ask when you’re buying a business. Working with a qualified business broker in California will pay dividends. Your business valuation consultant will help you review the documents, the business climate, and the industry so that you make a wise decision that will build your business for the future.