Buying & Selling a Company

A Warning About Due Diligence

Gregory Pearl

The due diligence phase of a transaction can haunt the seller of a business in many ways. I wrote about this earlier, but it never hurts repeating. The best way to avoid problems during due diligence is to reveal all of the company’s problems right away. As soon as possible. Of course, the seller should have good explanations as to why the issue is not a big deal or a problem. Why it can be managed. But especially don’t let the buyer find out on their own. Not all due diligence issues are financial (though that is very important). Some…

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Buying & Selling a Company

What are Representations and Warranties and Why Are They Important?

Gregory Pearl

Representations and Warranties, commonly called Reps & Warranties, is a clause(s) in an acquisition purchase agreement made by both the buyer and seller to disclose material information. The seller’s reps and warranties are usually more extensive as they include information about the company being sold. The representation part is a statement as to a fact., the warranty is a promise of indemnity if that statement is false. So, in an M&A situation, the seller is essentially guaranteeing certain things in a transaction. Generally, buyers want to have as many Reps & Warranties as possible. But sellers want to be careful…

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Buying & Selling a Company

More On Selling Your Business

Gregory Pearl

Selling a privately held business is not like selling real estate, it is far more complicated. And it isn’t just the sales process that is more complicated. Other business issues can arise that slow things down. Delay may be the worst enemy of closing a transaction. Most business owners only sell one company in their entire life.  Professional corporate M&A (business development) specialists have bought and sold many of them.  Some will have worked, some will not have worked.  But with each, the participants’ experience grows. What are the implications for the seller?  The buyer will probably be more experienced…

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Business Valuation, Buying & Selling a Company

What are Off-Balance Sheet Items?

Gregory Pearl

Off-balance sheet items are those assets or liabilities that are not reported in the company’s financial statements. They are not on the balance sheet. Off-balance sheet items are often not obvious. If a seller does not disclose these items at the beginning of the business sale process, the buyer’s confidence in the seller will be shaken when they are disclosed during due diligence. During a business valuation for tax (and other) purposes, one of my standard questions to the business owner is if there are any Off-Balance sheet items. The seller needs to be transparent with a buyer early in…

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Buying & Selling a Company, Decision Making

The Closing: Monday to Thursday is OK. Skip Fridays

Gregory Pearl

A closing is where all the legal documents are signed and money changes hands in a business sale (transaction). It is often a good idea to have a pre-closing meeting a week or so before to make sure there are no major issues that will prevent the actual closing from happening. So that everything will go smoothly. Both the buyer and the seller should be represented by the principals, people who authority to make decisions on the spot. That means any changes will not be held up because of a lack of authority. Have your support staff there to make…

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Buying & Selling a Company, Exit Planning

Management Buyouts: Mostly Good But Can Be Tricky

Gregory Pearl

There are several exit strategies for a business owner. A buyout by the core management is one option that has many positives and should be considered. This can be a very satisfying exit option. The owner has put everything into building this business, assisted by a capable management team. Seeing that team carry on can be rewarding. The trusted managers will carry forward the owner’s vision. From the management team’s perspective, it is an opportunity to own their own business. But there are potential pitfalls. Major pitfalls. Perhaps most importantly. a company’s positive culture can be harmed should the owner…

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Buying & Selling a Company, Exit Planning

Some Tips To Sell Your Business

Gregory Pearl

In my last post, I mentioned that selling your business to an outside (3rd) party may be the best way to maximize the cash you will receive from your privately held business. That is true, but to get the most for your company, you the process needs to be managed well. While each selling process is unique and different, there are some commonalities. Here are some tips that will, hopefully, help the sale of your business go more smoothly. Understand your business value. Be realistic. One of the greatest impediments to companies actually selling is that the seller has unrealistic…

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