First up: the seller must be paid.
In the process of selling a business, risks are assumed by almost all the parties involved and affected. Sellers make the mistake of thinking they are the only ones at risk. Front and centre of mind is the need to make sure they will be paid. This is obvious and understandable. Sellers give up their money-making asset, and they must be compensated. But a successful deal, paid in full, at the best price relies on everybody's risks being mitigated as far as possible, and to their satisfaction.
Ignoring other parties' risks
There are many other, apart from the seller, who are at risk in the sale of a business.
- The employees are at risk. They will worry about future employment, the culture of the business going forward, and their prospects for advancement. But they will also worry about their service record continuing.
- Suppliers are at risk. If a buyer is gaining control of the business to change a vertical supply chain in which they have some authority, there may be cause for suppliers retaining the business as a customer.
- Customers are at risk. They may worry about the future supply of the business's product or service. This may be by way of quality, delivery, or concentration. And if the new owner is making the acquisition to affect or control the supply chain, their fears may be well founded.
- Banks are at risk. Financial facilities are in place based on past and present performances. But the business's bankers have their own agendas with the business.
These are all the quiet, often hidden, and usually unconsidered risks. How a seller deals with them will be discussed with the buyers just before, during, or soon after the deal closes.
They are more likely to be crisis points to be dealt with by the seller and the new owner in cooperation with the parties.
The deal-failing risks
Business sellers tend to be so worried about their own risks in the early stages of the process, that they give little consideration to the buyers' risks:
- Performance: Buyers want to be assured of the performance of the business, obviously. And so they ask for financial statements, and management accounts, and bank statements, and so on. A good due diligence process will deal with all this.
- Future: Buyers need assurance of future performance. This is not to say that they can necessarily get warranties of future performance from sellers, when they have control. Sellers need to be careful of this. But there are ways of giving confidence to buyers as well.
- Fraud: It is a thing in mergers and acquisitions. Marcus Jooste and Steinhoff managed to pull the wool over the eyes of the best business brains. It is a risk for buyers which sellers should not ignore.
- Exposure: Sellers will be well aware of other potential buyers in the process. And if the eventual buyer is aware that other buyers have had access to trade secrets that could affect the performance of the business going forward, the seller's selling techniques could be the downfall of the deal.
A well planned selling strategy and due diligence process with staged access is key to protecting the interests of not only the seller, but also the eventual buyer.