Last month, I wrote about an established Northern Nevada business that was just put up for sale and was getting a lot of attention from potential local and national buyers.
To recap, the company offers a variety of name-brand business products to its clients, who are primarily other businesses. It was a business that had grown from $280,000 in revenue to $2 million.
As expected, it didn’t take long for buyers to see the value of this business. As a result, the sale of the
business is now in escrow. It’s in escrow for a variety of reasons.
First, the business’ financial history is solid, it currently is very profitable, and there is potential for continued growth.
However, there are a number of other reasons why it’s in escrow, which other potential sellers could learn from, some of which might not be so obvious.
One of them is that the seller’s financial documents were in order and the business’ cash flow could be identified.
There wasn’t any gray area in trying to determine the business’ net profit and discretionary expenses.
Another reason was that the owner has always delegated key responsibilities to staff members. Buyers find this appealing because this shows that the seller is not the business.
This helps reduce the risk of lost momentum when the buyer takes over.
Another reason was that the seller established a realistic value for the business. A price that allows the new owner to earn a fair return on their investment after debt service will always get the attention of a real buyer.
The seller also was prepared to carry a note. This is viewed as a vote of confidence that both the buyer as well as the business will succeed.
All of the above were things that the seller did. However, the buyer deserves to be commended as well.
The buyer took the information as represented by the seller and wrote his offer based on that information. Of course, the offer contains the normal contingencies that need to be satisfied, such as the seller providing financial records that can verify the represented cash flow.
By doing so, he was able to lock up the purchase of the business while other qualified buyers were still considering.
In one of those cases, a buyer spent a fair amount of time, energy and resources prematurely trying to verify the numbers that had been represented by the seller. This illustrates why we recommend to all buyers that they save due diligence until after they have contractually secured sale of the business.
If the numbers do not add up, they can get out of the deal at that point.
Buzz Harris is a Licensed Business Broker with The Liberty Group of Nevada. Contact him at BHarris@TheLibertyGroupofNevada.com.