Business transactions can take a long time and require a fair amount of due diligence. This can be painful for both buyer and seller. Buyers, after the initial letter of intent is signed, must verify and validate all the information and numbers on which they based their offer. Sellers must ensure the buyers are provided with detailed information and don’t find reasons to pull out of the deal.
A business broker friend, Scott, who has been involved in a hundred or so business transactions, once told me that the way to get a deal done is to plan the discovery process so that the story got better over time. I asked Scott what he meant by that. He replied that most sellers feed buyers with all the good information up front. Then, as they move through the due diligence process, they run out of new and positive information to share with the buyers. Buyers actually dive into and evaluate the risk factors of the business during the due diligence process. This almost inevitably includes discovering information that does not meet their expectations.
Scott’s belief is that during the due diligence process is the most important time to communicate good news. This helps keep buyer enthusiasm high as the deal gets closer to completion. Scott even suggested reserving some of the good news and information to release during the due diligence process. Careful planning of how the story unfolds for buyers has seen consistent success for Scott across many deals.
I think there are some lessons that service and investment providers can take from Scott’s experience. In any investment transaction that requires research and a reasonable amount of time before closing, it’s important to ensure that the story continues to get better. That’s the best way to ensure the buyer moves forward and closes the transaction. How can you make your story get better over time?