The Importance of Relevant Experience in a Business Sale
Art Markman, a professor of psychology & marketing at the University of Texas at Austin recently wrote an article about the research he has been doing which reaches the conclusion that “…the best leaders know a lot about the domain in which they are leading, and part of what makes them successful in a management role is technical competence.” https://hbr.org/2017/11/can-you-be-a-great-leader-without-technical-expertise
This research is relevant to the purchase & sale of a business on multiple levels.
Business brokers are tasked by their clients with quarterbacking the transaction from valuation through marketing & negotiations to facilitating completion of the business sale in a collaborative process involving attorneys, accountants, and often wealth advisers and/or bankers. A diverse set of professional projects requiring unique knowledge, experience, and a sophisticated skill set.
If a business broker’s professional responsibilities are broken into their occupational components it will be identified that in one person a business owner wishing to sell their company is hiring an appraiser, a marketer, a negotiator, and someone who has knowledge & experience with banking, accounting, law, and real estate. Development of technical competence in a business broker traditionally takes 3 or more years of mentorship by a seasoned mergers & acquisitions professional in an environment with proper resources & infrastructure. Caveat Emptor “Let the Buyer Beware” if they hire a business broker unprepared to justify the desired sale price of the business to potential buyers, who is not a persuasive salesman & experienced negotiator, and/or does not have knowledge of strategies for the mitigation of tax & legal liabilities after the sale is completed. A good way to assess technical competence in a business broker is to inquire about the transactions they have personally successfully facilitated, ask for references for past clients, and understand the firm infrastructure, experience, and knowledge behind them. Tom Brady is an incredible quarterback who has performed historically under pressure at the top of his profession for years. However, only a fool would not recognize that a component of his success is the team around him and Bill Belichick. The same is true for business brokerage. A business broker is only as strong as the team around him and the leadership present in the organization.
The second place relevant experience is important in the purchase & sale of a business relates to the buyer obtaining acquisition financing to complete the transaction. All business banks will evaluate the borrower’s relevant experience in the underwriting process. An entrepreneur wishing to buy a business should anticipate this underwriting element and tailor their resume and cover letter to highlight relevant experience when submitting an application for funding. For example, if the company being acquired requires personnel management and the buyer formerly worked at Microsoft an emphasis on the number of people and groups managed should be highlighted. Similarly, if the same individual is acquiring a business that requires technical expertise, software products developed under the individual’s supervision should be identified. The most common loan used to acquire businesses in the United States, the Small Business Administration’s 7(a) program specifically requires in its SOP’s “A discussion of the owners’ and managers’ relevant experience in the type of business, as well as their personal credit histories.” by the bankers advocating for & underwriting the loan.
The third place relevant experience is important in the purchase & sale of a business is the most obvious. Relevant experience is critical by the business buyer for the successful transition of ownership and future performance of the business. No business seller wants to hand over the helm of their business to a party that is not able to navigate the company successfully into the future. This is true for a variety of reasons including concern for the company’s employees, customers, and suppliers; the amount of time, energy, & resources they invested in the company’s prior success; and if they finance a portion of the sale their ability to get paid in full in the future. The business buyer should take the helm of the company with confidence and a vision for where they want to take the business moving forward.
Relevant experience is important in a business sale transaction whether you are the buyer, seller, business broker, or lender. The end goal for any “win-win” business sale transaction should be for the seller to get a fair price and the buyer an appropriate return on their investment. If you are interested in selling a business in the Pacific Northwest in 2018 and would like a business broker on your team with the technical expertise necessary to complete the project at the highest possible market price, IBA would welcome the opportunity to interview for the position of quarterback on your transaction team.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.