CHAPTER 12 Filtering for the Owner’s Commitment to Sell Flashcards
(17 cards)
Why is owner commitment to sell considered a critical filter in small business acquisition?
Because many first-time sellers aren’t aware of the emotional, financial, and time-consuming realities of selling, and may back out late in the process.
What risks do buyers face if an owner backs out late in the selling process?
Wasted time, cash outlays to lawyers and accountants, missed opportunities, and potential depletion of search resources.
What is one of the clearest indicators that an owner is committed to selling?
An external compulsion such as retirement, poor health, divorce, partner disputes, or death.
Is focusing on owners with external compulsions to sell unethical? Why or why not?
No; it simply aligns serious buyers with serious sellers, improving the likelihood of a successful transaction.
What are some qualitative signs that an owner without external compulsion may still be committed to sell?
Owner fatigue, desire to focus on other ventures, or hitting a financial milestone.
Why should buyers be cautious of sellers who say, ‘I’ve taken the business as far as I can’?
It might indicate underlying problems or unrealistic expectations, rather than genuine commitment.
How does the financial reality of selling often deter owners late in the process?
After-tax investment income from the sale is often much lower than the after-tax profits from running the business.
What alternative might owners choose instead of selling?
Hiring a general manager to run the business while they collect passive income.
Why are unrealistic price expectations a red flag?
They indicate a lack of understanding of market norms, potentially leading to failed negotiations.
What tactics can buyers use to assess a seller’s price expectations?
Ask brokers directly or float a valuation range during early conversations to gauge the seller’s reaction.
What is meant by a ‘debt-free, cash-free’ acquisition?
The seller keeps business cash and pays off debts; the buyer takes over the business without those liabilities.
Why does misunderstanding working capital expectations often derail deals?
Sellers may expect to keep accounts receivable, not realizing they are part of operating assets included in the sale.
How should buyers address misunderstandings about deal terms?
Discuss key terms like working capital and debt-free status early and often during negotiations.
Why is the seller’s willingness to remain involved post-sale important?
Smooth transition and financing often depend on the seller’s cooperation after closing.
What signs indicate a seller may not stay involved post-sale?
Plans like travel or reluctance to engage professionally early on in discussions.
How can ownership structure affect deal closure?
If multiple owners are involved and not all are committed, deals can collapse late in the process.
What should buyers do when ownership is complex or shared?
Investigate who holds ownership and ensure all parties are aligned in their intent to sell.
