Evaluating a business for sale & how deals fall apart

  • by Krystena Petrakas 

Interview with...

Michael Wildeveld, The Veld Group
Topics covered:
How deals fall apart, the importance of hiring a broker, what to look for in a business to buy
CV:
15 years as a broker, financial analyst for American Airlines and started & bought businesses including nightclub, print shop & tanning salons
Expertise:
Experienced broker and consultant, with M&A expertise, overseen main-street and start-up deals as well as for large companies
Location:
South California
Buying a business

Michael Wildeveld on how deals sometimes fall apart...

“Deals fall apart on a number of fronts. Buyers are risk-averse and should look at every business with a sceptical eye. But you have to understand with small-business sales that it’s a small business and things aren’t perfect.

“A lot of buyers come from the corporate world with perfect financials and that’s just not the case with small businesses. The average small-business owner doesn’t have such high quality of books, and details will come out of the due diligence process that typically make the business less attractive.

“Buyers don’t necessarily have reasonable expectations, so their attorney will give them advice, but if they're not familiar with running small businesses they'll be risk-averse and will prevent the party they're advising from ever purchasing the business.”

On the role of a broker...

“It’s far more difficult to accomplish a sale without a business broker than it is with one. The reason is, you always need a buffer between the two parties; without that, emotions come into play.

Find a business with a competitive advantage or barriers to entry, either because of its unique geography, product or technology

“You need someone to manage the transaction when you have face-to-face interaction between the buyer and seller. It simply doesn’t work without a broker.

“Not having a broker is the number one thing to kill a potential first sale on both ends of the equation. One party will always seek to gain advantage over the other without necessarily putting the best interest of the sale at heart.”

Three pieces of advice to anyone buying a business...

“Be very open-minded when evaluating business opportunities. Evaluate them with a cautious mind but also evaluate them thoroughly.

“Two: consider a business that’s scalable or that will have long-term sustainability. Find a business with a competitive advantage or barriers to entry, either because of its unique geography, product or technology.

“Finally, be aware of the law of adverse selection: those vendors that appear to be the most willing to work with you often have the least attractive businesses.”

Read about Leveraging social media to identify a business to buy by Trista Perot