Essential preparation business brokers need to give clients before they get to the deal room

Getting a business on the market and finding a buyer is a huge task, but it’s only half the battle.

As a business broker, your role in the deal team is critical in terms of preparing the deal, preparing your client for what’s involved and helping keep things on track from listing through to settlement. 

The more you can prepare your client before contracting, the faster the legal phase will be! 

Here’s what we’ve seen top brokers do to ensure they are preparing their clients for selling (or buying) and the ‘deal room’ they’re about to enter.

Demystify deal structures (before they’re on the table)

There’s more to a business sale than a price. There are 101 ways to structure a deal. Often the structure of a transaction may be driven by a seller’s tax considerations. This could mean you might be dealing with a share sale instead of a business sale. This may be 100% purchase, or part purchase. Will this be all cash at completion? Or upfront plus a deferred payment? Or might it be structured as cash and shares? Or might there be an at risk component like an earn out?

There is no one size fits all solution for all sellers - but the more they know about the options they have, the better prepared they’ll be.

Understand key deadlines, documents and why they matter…

Deadlines matter - especially with lease assignments, disclosure statements, PPSR interests and other elements that might slow settlement down. When a deal is done, it’s absolutely critical they understand key deadlines and appropriately plan to ensure they meet them. 

Documents matter - Explain the purpose of each of the core documents. From NDAs to Heads of Agreement/Letter of Intent/Memorandum of Understanding, sale and purchase agreements, employment agreements, leases, shareholder agreements and put and call option agreements. Knowing the role of these documents and when they may be needed helps bring clients along for the ride.  

In our experience, the simpler and fairer the documentation is, to begin with, the lesser the angst for all involved in negotiating them. This will of course also translate to a quicker transaction and less legal costs.

Prepare for DD… first impressions count (move your boat)

A seller needs to be prepared for the Due Diligence process. Knowing a prospective buyer will review the accounts and investigate other areas of your business is one thing, but going through the process is another. Anticipating questions and being prepared for due diligence will make the process quicker and easier. Make sure you understand the financial and legal items that a prospective buyer will be looking for so that you can show your business in the best sale-ready condition.

And.. particularly with manufacturing, wholesale or retail businesses, or any businesses that hold stock, when a buyer comes to visit the site, first impressions can have a big impact. Sure, polish the front/office - but don’t forget to clear out the warehouse, move the family boat out of the factory, dust and neatly stack your boxes.

Get clear on employment issues early

Employment entitlements are a tricky area in Australia - different states treat some accrued leave obligations differently. Unclear agreements with staff (especially if staff = family members or close friends) can kill a deal. So too can employee entitlements - unfortunately dealing with accrued leave is often an issue in businesses with loyal, long-serving employees. Ensuring your sellers understand how long service leave, accrued annual leave and personal leave liabilities might impact on their sale before they’re in the deal room is critical. Time and time again we’ve seen this become a key issue between buyers and sellers (so much so that we provide clients with a 10-page guidance to help them understand their obligations and options in this area).

Another tip…

Help them know what a good deal team looks Like

They’re going to need an accountant, and a lawyer in their deal team - and ideally, they will have one of each that is organised with systems, processes and also has strong experience in buying and selling businesses (we all know this makes for a better deal process for all involved). Many business owners don’t know what they’re missing until it’s too late. Ensure you can help them find someone that will also be responsive - two weeks is too long to wait for a lawyer to pick up a contract! Back and forth drafting, emails and nit picking can easily result in cost blowouts.

Here’s a helpful checklist to get them on the right track.

Help manage expectations from the start

If your client wants to move quickly on a sale you need to make sure they know they’ll need “all of their ducks in line”, so to speak. A sale can take a long time to negotiate, get the contract agreed, and do all of the steps required to transact the sale – and sellers often badly misjudge how long the process will take.

As a broker, your role is to help them understand that the business sale process is not a tick-a-box activity. Some areas will require tough decisions and some areas may be contentious, particularly given the emotions that are often are involved (on both sides of the deal).

While it may sound cliche - a business broker is the epitome of a trusted advisor during a deal. Taking the time early on to ensure the business owner you’re working with genuinely feels guided, understood and in good hands is going to help keep your deal on track when emotions run high, and the going gets tough.

Read more about agency practice: Best practice for the use of electronic signatures.

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