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Edmonton Business Broker – Make your Financial Statements Available

Many prospective business buyers express concern when a seller or business broker asks them to provide their personal financials. Personally, I’ve never understood this apprehension. There are a number of issues buyers note specifically as being worrisome, but the truth is their reasoning is based more on opinion than fact.

In my experience, those buyers that are unwilling to provide their financials are generally the ones who are either not serious about buying a business, they are often completely misinformed about the business-buying process, or they are simply not in any position to acquire the size businesses they are investigating.

There are two main buyer misconceptions that you need to understand so that you can gain comfort with this matter.

Myth # 1 – Disclosing the Buyer’s Financials Will Reduce Their Bargaining Power

I’ve heard buyers claim that once they divulge their financials they will be at a disadvantage in any negotiation. The fear often cited is that the broker/seller will now know exactly how much money they have, and will then push harder to get hold of all of their cash in a down payment or force them to secure a loan with all of their assets.

While I do understand this assumption, in fact, the opposite holds true. A financially strong buyer will actually improve their negotiating position.

  • The other side will recognize their ability to get the deal done.
  • The buyer will immediately establish credibility by having achieved a certain level of net worth.

On the other hand, if you do not have the financial strength to execute a certain deal size, it will force you to adjust your thinking and focus your time on businesses that make sense for you. Here again, you will be in a better position when you provide them to parties for the reasons noted above.

Myth # 2 – The Seller/Broker Has No Reason To See a Buyer’s Financials

To me, it simply shows good faith and honestly to be willing to provide your financial statement. After all, if you want to see the seller’s books and records, shouldn’t they be entitled to see yours? This is especially true if you want to negotiate any seller financing.

Further, throughout the transaction, the seller will provide you with infinitely more confidential information than your personal financial statement will disclose.

Now, I know all the skeptics are saying: “I signed a confidentiality agreement but they didn’t”. Good point, However, the seller/broker has absolutely no interest or reason to disclose your financials to any other parties. Additionally, even in a worse case scenario, let’s say they did tell someone, what possible negative impact could it have on you? If you want added assurance, have the seller/broker sign a non-disclosure attesting to the fact that they will hold the information in confidence (your attorney can draft a simple agreement).

The Biggest Reasons to Complete a Personal Financial Statement

It blows my mind every time I ask a buyer “How much are you willing to invest personally to buy a business” and they reply: “I haven’t really thought of it.” Well guess what, if you haven’t thought of it, you should put a complete halt on any additional looking, at start to think of it now.

First, it is critically important that you get a handle on your personal financial situation. Yes, it is true that there are some wonderfully creative ways to finance a business purchase regardless of your financial position, however, in smaller deals these generally play less of a role.

Second, if there is someone else who shares your financial picture (i.e. a spouse or partner), you need to have them completely on board so that when the time comes for you to write a check together, there won’t be any surprises.

Third, and most importantly, by completing this simple task, you will put yourself in a much better position against other interested buyers on those businesses that you can afford to acquire.

Presented By Dwight Lester, Performance Business Brokers, Edmonton Alberta

 

Edmonton Business Broker – Key employees, Who Must Stay On?

Buying An Edmonton Business With Key Employees Who Must Stay On….Author Richard Parker

In many small businesses, the owner is often the truly key employee responsible for driving the sales and profits. In fact, a quandary many buyers face is with situations where the owner is “the business” however, there are situations where retaining certain key employees is fundamental to the ongoing success of the business under new ownership.

The first thing a buyer must do is to properly gauge the importance of specific employees. If a business has low level, hourly employees who can easily be replaced, there is no need to get overly concerned about whether or not they will stay. To this point, it is not necessary for a buyer to meet with employees of a company pre-sale if in fact these are basic employees who of course are important, but their departure will not really impact the business.

However, wherever possible, prospective business buyers should endeavor to meet with truly key employees before a sale. This is also important from a standpoint of knowing that the business can never be held hostage by any non-owner. After all, if the business is totally reliant on one key employee, does it really make sense for you to buy it?

Keep in mind that the incidents of employees leaving after a sale are far less frequent than most buyers believe for a few reasons. First, it is change, and the uncertainty thereof that concerns employees. Once they realize that nothing drastic will happen, they will simply carry on with their work. Second, and quite obvious today, jobs are not plentiful. As such, it is simply not that easy for anyone to get another job.

However, what about situations where there are key employees or ones that hold certain licenses for example that a business may need to operate. In these cases, it is important for a buyer to meet these individuals as part of their due diligence review. Yet, they, the buyer, must understand that a seller will almost always buck at this provision and it is understandable. A seller is always going to be concerned about word getting out of a sale and especially if it does not materialize. As such, in these situations, meetings with key employees have to be arranged at the point where all other deal conditions have been satisfied.

Next, the question becomes how can a buyer guarantee that an employee will stay? The short answer is they cannot. Contractually, a seller cannot bind anyone else so forget the idea of including language in a contract whereby a seller agrees that specific employees will sign an employee agreement. While a buyer can certainly have a condition of the deal to provide for certain employee agreements to be executed, this can only be done between the buyer and employee.

What also needs to be considered is whether or not a buyer even wants to be bound by an agreement with any employee. On the one hand, a buyer may want the security of knowing an employee is contractually obligated to remain, but what if they soon discover they want to terminate them? Personally, unless there are highly unique circumstances, my recommendation is that a buyer should defer such agreements and obligations until such time as they (the buyer) has an opportunity to work in the business and effectively measure the so-called key employee’s contribution.

Presented By: Dwight Lester, Performance Business Brokers, Edmonton Alberta