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Selling a Business: How to spot a time waster

Will He Waste My Time?

Will He Waste My Time?

Buyers that make an offer and then fail to move things forward are one of the most frustrating aspects of selling a private company. This article offers the thoughts of an experienced UK business broker on spotting a timewaster.

One of the hardest parts of the process of selling a private company, even for an experienced broker, is telling the serious buyer apart from the time-waster. We often talk to potential clients that have been waiting on a buyer to move forward for weeks, even months. The hard truth is that if a transaction stalls, even for a few weeks, it is unlikely to go through. It takes a lot of effort to buy a company, and the eventual buyer will be pushing you forward. If your sale process is stalled it is time to look for another buyer.
 
How Do You Spot The Timewasters When Selling A Private Company?
 
There is no certain way to spot the timewaster in advance, but in our experience acting as a business broker in the UK for more than 10 years, serious buyers display the following traits. If your buyer does not display most of them it is time to move on.

The Buyer Has Access To Funds

This might seem an obvious point but many deals stall because buyers are struggling to raise the money. A competent broker will have procedures in place to check a potential buyer’s funding position, but it is not an easy area in which to get a definitive answer. Most buyers will not be large corporates with funds laying around just waiting to be used. Most will have to borrow money to complete a purchase. Even where “comfort letters” are received from potential lenders, the devil is in the detail, and a funder may be less keen when they know more about the transaction. If lenders are enthusiastic your solicitors will be getting requests for relevant documents and information either directly from the lender or through the buyer’s solicitor. If this is not happening there may be problems.

The Buyer Contact Is The Decision Maker

If you are dealing with a subordinate of the buyer’s managing director or owner, it may be that the buyer is not as far along with their decision making as you have been led to believe. If at all possible push to get a meeting with the ultimate decision maker. They may well prove to be further away from a definitive decision than you hoped.

The Buyer Shows Energy For The Process

Buying a company tales a lot of effort on the part of both buyer and seller. The eventual buyer will display a lot of energy for the process during the two to three months it takes to get from accepting an offer to completing the transaction. They will be pushing you forward and expressing frustration at the inevitable delays.

The Buyer Has A Compelling Business Or Personal Reason To Buy

Companies are bought because the buyer sees the potential to make a lot of money, or secure a good living. If you do not understand the buyer’s motivation for buying your company, there may be a problem getting the deal through to completion.

The Buyer Is Cooperative And Willing To Listen

Due diligence and contract negotiation will inevitably throw up issues and potential roadblocks. A serious buyer will show flexibility in resolving problems, and a willingness to understand both sides of a problem. If a buyer takes an intransigent line over a seemingly trivial item it may be a sign they are looking for an excuse to withdraw.

The Buyer Is Spending Money On Advisers

Even for a small transaction a buyer will spend at least £10,000 on solicitors, accountants and fees to funders. In most cases considerably more. Most buyers delay expenditure until they are absolutely determined to move ahead. The involvement of the buyer’s solicitor in particular is usually a good sign.
 
What Steps Can The Seller Take To Make Sure A Transaction Completes?
 
At the most basic level sellers and their brokers need to take a hard look at those who express interest in the business. If a prospect does not show most of the traits in the list above, it is probably time to move on to the next potential buyer.

Even a determined buyer can be put off if a seller proves difficult to deal with. As much as the buyer, a seller needs to show a willingness to solve problems, and avoid intransigence on minor points. Prompt responses to requests for documentation and additional information are critical. If the sale process stalls because the seller is slow to respond, it gives the buyer time to reconsider their motives for the deal, or to get distracted by other events in their own business.

Perhaps the best security against a stalled deal is to cultivate alternative offers. Many of the stalled deals we see arise from unsolicited approaches. Buyers feel able to take their time if there is no competitive tension. A professionally managed sale process, where the broker actively brings multiple buyers to the table at the same time, is the best insurance against a stalled deal.

 

If you are interested in finding out more about these and other issues relating to the sale of a private company one of our business sale experts would be delighted to talk to you in complete confidentiality. Click CONTACT ME to book an initial phone conversation or call us on 01604 432964.

 
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