Archive for category: What Buyers Need to Know

We have worked with hundreds of very successful clients over the years and have been fortunate to participate in successful transitions to new owners.  However, there have been a few tough ownership/partnership situations that have made transitions difficult. Partnerships can be a very good way to get into business if documented properly. They can also be a curse if there was a lack of preparation and foresight.

David Seitter with Spencer Fane in Kansas City has had quite a bit of experience assisting new owners writing partnership and operating agreements and has also been involved in cleaning up the messes caused by improper partnership planning.  David and I recently spoke about partnerships pitfalls.

Doug:  “David, What do you see as the leading causes of partnership disputes?”

David:  “The joy and enthusiasm in starting a new venture becomes, at some juncture, a challenge to fulfill the expectations each individual has for the relationship. Like all great “marriages” the ability to lay out clear terms of understanding up front on “why” [and see Simon Sinek’s book “Start With Why” in this regard] this partnership makes sense is, in my experience, the clear starting point that is often not fully developed.

Some of the success stories I have seen have occurred when folks working together as employees for a company declare one day…. “hey, we have a better model for customers because we will build it for the following reason which is__________”. And so begins the “why” conversation. It is not the “how” or the “what” but why the two parties should work together that is the most telling. And if that is not discussed up front…well then, disputes will occur.”

David: “Doug, what do you think are the leading causes of partnership disputes?”

Doug: “Over time, it seems that people grow apart in a couple ways. One partner feels that they are putting more effort into the business without proper compensation, or one owner wants to grow the business more aggressively while the other is satisfied with status-quo.  People change over time and sometimes the partnership doesn’t change with them. There needs to be ongoing communication about personal and business developments so that the partner’s visions are in sync.”

Doug: “David, What could have been done, if anything, to avoid those disputes?” 

David: “Well…disputes cannot be avoided.  You know you can have a great conversation with a partner, but it doesn’t have to be pleasant…it is about getting the issues to the table and using resources internally and externally to resolve problems.

My clients know much better than I that there will always be problems that have to be dealt with. The question is how to handle the disputes which will always arise. Some of the best functioning companies I have had the pleasure to be around have owners who have amazing abilities to handle each other at the highest gentleperson level through great communication and better listening skills, along with unbelievable patience and desire to mutually solve problems. And I call those folks “owners”.
 
First, when starting the conversation of building a partnership, start with why. Then determine what each partner brings to the table. No two people are alike which is great! Some have great entrepreneurial bents…some are excellent in following through on projects, some are good at details and some will execute any decision. If I have learned anything from Dan Sullivan of “The Strategic Coach”, it is that business owners have to determine what they do well and do just that – sharing power and authority to those who can add bring other skills to the ownership table.

In summary, do not avoid disputes, but embrace a mechanism that will allow you to effectively deal with the same. During one of our next blogs we should discuss the “phone book” theory of entrepreneurial problems.”

Doug: “Can partnership contracts or agreements help to avoid problems?”

David: “Yes. Anytime you can lay out the terms by which you will do business together, the better off you will be.  But remember, a good contract cannot keep together a bad relationship.  The paper is only as good as the people who wish to live the terms of the agreement!”

David: “How do you counsel folks on dispute avoidance?”          

Doug: “Probably similar to what you mentioned, but when we see them at Apex, it’s usually too late. They have already skipped through the tips you just mentioned, avoided the tough conversations early, and now are just angry and ready to file suit (in the extreme).  What we would prefer is dealing with companies whose owners are not ready to kill each other. They don’t have to be happy and ready to spend the next 10 years together, but they should still be cordial, professional and working for the best interest of the company. After all, if buyers sense a problem with the leadership, it will only hurt business value.”

Talk to your Apex Business Advisor or reach out to David Seitter to discuss partnership planning or existing issues. We are happy to assist!

Opportunities can disappear in a blink of the eye!  Engaging in business acquisitions requires buyers to act quickly and assertively. There is quite a bit of activity in the market with many buyers looking for businesses to purchase. The best businesses go fast! If you have been looking at businesses for a few months, or years, you know when good businesses become available.

But potential business buyers repeatedly miss out on deals because they hesitate, want to do all their research up front, want to talk to bankers, industry associations, or do other things that keep them from making a decision. By the time they start to get comfortable with the opportunity, the business is already under contract. This happens time and time again. Don’t do the research hamster wheel.

The first research step should be meeting with the seller. What better way to find out about the business and industry! There will be plenty of time to thoroughly examine the company after the meeting, and the research will most likely be much more efficient.

Why do tons of analysis on a company, meet with advisors and then decide not to move forward after interviewing the seller? Another advantage to meeting with the seller prior to conducting time-consuming research is that he or she could potentially give clues as to what a buyer should be reviewing.

Don’t miss out on that deal that you’ve been waiting for!  Talk to your Apex Business Advisor for more information on buying or selling a business.

Doug Hubler
President

This is an old Chinese proverb. Or He Who Hesitates, Regrets. An Albanian Proverb.  Either way works in the business broker world. We see hesitation with buyers and sellers every day. Whether Buying a Business or Selling a Business, either party can ask the same questions – Is this the best or right price for the business? Will there be a better opportunity next week? Am I doing the right thing? I’ve gotten three opinions, should I get three more?

When you operate your business, or make decisions in your job, hesitation can often be costly. One of the benefits of owning your own business is that you can make all the final decisions and you can make them quickly, without going to committee.

Many people leave the corporate world for this reason alone. How many times have you said, “Boy, if I could run this business and make decisions without all these meetings, I could double revenue” or something on the same theme?

Here are some examples of recent regrets that our Kansas City Business Brokers have witnessed:

• Seller was presented with two good offers within the last year. Both were declined as insufficient. The business is now in bankruptcy because the seller’s health is failing and he is not able to tend to the business.

• Buyer A wanted to make an offer on a business but wanted to complete due diligence first. The seller balked at providing further detailed information without an offer. Buyer B quickly submitted an acceptable offer with a contingency for completing due diligence and is currently on his way to the closing table.

• A buyer wanted to make an offer on a business but decided to wait until kids were back in school after spring break. The business sold while he was in town – at home.

These are real regrets and real pains. It’s understandable that someone wants to make the right decision. However, we see the deal-killing results of analysis paralysis every day. In the end, those who have the ability to be decisive within a short time frame are usually the most successful at making it to the closing table with a satisfactory deal.

We at Apex Business Advisors are here to help with your business transition. Contact one of our Business Advisors for a free consultation.

Doug Hubler
President