I’d like to offer a counterpoint to a recent Daily News column that I presented a slanted view of the process used by investors to acquire the business of an entrepreneur (April 19, Selling the Business: Games Buyers Play).
The column portrayed business buyers as being clever and cunning. It implied that buyers lure naïve, unsuspecting entrepreneurs into a black hole and ultimately to a buyer favored deal at the expense of you know who.
The column suggested that buyer tricks such as “premium price offers” and the promise of a “fast track to closing” pave the way to an extended beat down of the weary seller.
There are of course some aggressive players out there who intentionally use these tactics. However, most investors/buyers – those who are correctly sourced by business owners – are fair, reasonable and prudent.
Correct sourcing is the key.
Finding the path to the community of qualified, respectable buyers is the job of the entrepreneur. The goal is to present the business offering to those who come from referrals or through reputable networks that provide an opportunity for checking credentials.
Here are five rules for the entrepreneur business owner seeking capital or a sale:
• Be prudent. Do not engage with the party who just knocks on the door or falls from the sky without first validating their authenticity as a reputable investor/buyer.
• Keep it real. Unrealistic expectations regarding value and/or control are the most frequent spoilers of these transactions. The entrepreneur with the next multimillion-dollar idea or business plan but without the funds to properly commercialize it simply must keep it real when negotiating for investment capital. This doesn’t necessarily mean accepting less money or giving up too much equity. It does mean using a professional intermediary if necessary.
• This is not a game. Real money is at stake by the investor/buyer. A career, reputation, life’s work, blood sweat and tears … all of this is at stake by the entrepreneur. This is serious business, so if the other side ever starts “playing games,” call a technical foul.
• Look for good chemistry. Having good vibes with the investor/buyer is not absolutely essential, but it certainly makes the business relationship work better.
• Assemble a great bench of advisors. The entrepreneur should be surrounded with people that are trusted, respected and who have done this before. The lawyer, accountant, investment banker (if the transaction size is sufficient), friends, and mentors all have roles.
On occasions, it may be right to set-up an auction for a company sale, or to limit exclusivity to 30 days, or to require a big deposit that is forfeited if the deal busts as the April 19 column suggests.
But don’t automatically adopt these seller tactics. Let your trusted advisers guide you. Each transaction is different.
And above all, remember that this is not a game!
Bob King is co-founder of SEACAP Financial, an investment bank and management adviser for privately held, family-owned businesses in the Mid-South. He can be reached at email@example.com.