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Just today I talked with two clients. One was in the process of buying a company and one was in the process of selling his company. Both companies are run very well with great teams in place. I called some clients for the selling company and found some very interested potential buyers. The company exploring an acquisition is going to meet with the prospective seller, do his homework and get back with me. Now is the time for both owners to do their “due diligence” – their homework. Do Your Homework Due diligence is a term with which you should familiarize yourself. Basically, it’s the legal term that means do your homework. Buying, selling or merging with a business isn’t just a numbers game. Many of the big consolidators have tried to turn this process into a Monopoly game of sorts. In some cases, I’ve seen heavy-handed tactics used, and that’s one of the reasons for their failure. It was a shotgun wedding of sorts. There’s a psychology involved with mergers, acquisition and divestiture (MAD) transactions. (Maybe that’s why it’s often referred to as going mad.) But by psychology, I don’t mean you’re trying to psych out the other party. Rather, there’s a psychological process you need to understand, especially from the seller’s perspective, to be successful. If friends or family are involved, you particularly want them all to do their homework, and to look out for their best interests. Encourage participants to obtain their own counsel or accountant to independently verify the numbers and the process. Go the extra mile to protect the relationships of all concerned. Too often I hear “friends” encourage other business associates to violate or ignore good business practices because they’re “friends.” This often takes the form of borrowing or lending money without any written agreement about paying it back. My position is that, if you’re truly friends, you want to have everything above board and in writing to protect the relationship. I’m not going to discuss how you should structure the deal or value the assets. That’s between you and your attorney and CPA – the team that we discussed in my last article. The buyer might even want to carry a life insurance policy on the seller, with the buyer named as beneficiary. You should also consider how you’re going to pay the seller. Here are some options worth considering:
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This article was adapted from James Huston’s books “A Critical Analysis of the MORS Estimating System” and “How to Price Landscape and Irrigation Projects.” For a free audiobook version (plus shipping) of “MORS,” visit www.jrhuston.biz. |
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