Nine Steps to Better Due Diligence, Closing Deals

Loren Marc Schmerler, President and Founder of Bottom Line Management, Inc.
Loren Marc Schmerler, President and Founder of Bottom Line Management, Inc.

Third in a series on Business Brokering
Buyer and seller strike a deal, but a thorough due diligence can either seal or sink that deal.

Georgia Association of Business Brokers Vice President Mike Ramatowski moderated a panel discussion at the July meeting on getting buyers and sellers through due diligence and to the closing table. Panelists were GABB Board Member Loren Marc Schmerler, CPC, APC, President and Founder of Bottom Line Management, Inc.; Kim Romaner, President of Transworld Business Advisors, who has 30 years of corporate and entrepreneurial experience in sales, marketing, operations and technology; and attorney Sarah Wheeler of Moore & Reese.

Miguel Alandete and Jon Kaye of Wells Fargo sponsored the meeting.

Nine Steps Include

1. Find out if your clients REALLY want to buy or sell the business.

Have a heart-to-heart talk with your clients before putting the business up for sale, or making an offer on a business, to make sure the buyer and seller are really truly ready to do this. Cold feet will sink a deal, says Wheeler, who represents buyers, sellers or acts as a transactional attorney.

2. Make sure each side has realistic expectations.

Sellers must understand that they will be expected to sign a non-compete contract when they sell. Buyers must understand that if they need financing, they shouldn’t expect to get financing from the seller with zero percent interest.

3. Clarify the terms of a Letter of Intent.

A letter of intent, a.k.a. LOI, is typically the beginning of the buying process and signifies a meeting of the minds. Both parties should understand whether the LOI is binding or not, how earnest money will be handled, etc.

4. Take the skeletons out of the closet.

If something is wrong with the business, if there is a liability, it’s a bad idea to hide that fact from a potential buyer. If it comes up in comes up during due diligence, Wheeler notes, the buyer will assume the seller was trying to hide it, and that makes it a lot harder to deal with. Schmerler said he had a sale imperiled because a prospective buyer discovered that a major client was going to discontinue business.

5. Use a GABB lender.

GABB-affiliated lenders have experience with business sales, and understand the process. Other GABB affiliates are familiar with the ins and outs of deal making and will make the process smoother.

6. Get franchisors, landlords on board.

If you’re selling a business with a lease, don’t leave the landlord out of the process. Ditto with a franchisor if a franchise is involved. These and other interested parties can make or break a deal.

7. Complete the lender checklist.

Lenders typically send out checklists of items they need before a sale can be completed. Sellers should read them and get that information together as soon as possible. Try to educate your client that the money drives the ship, and the closing will happen when the lender is satisfied.

8. Leave enough time for proper due diligence.

Due diligence takes time. Count on at least ten days for a main street transaction, Romaner said, longer for bigger deals.

9. Clarify expectations after the sale.

Sellers often agree to stay on during the transition, but Schmerler said usually the buyer doesn’t want the seller there after the second or third week. The buyer wants employees to view him or her as the new owner.

gabb-logoListen to the entire panel discussion at the GABB blog.