The Perfect Win-Win Deal Structure keeps the business alive, pays the seller properly, and lets the buyer pay for the business with the business's own money.
Many 80% of businesses simply won’t sell because the brokers involvement stalling the sale or the banks simply won’t lend so you have a small pool of buyers.
A cheque is nice; a deal that works is better and opens the door for more and often better buyers to continue your legacy, who could not otherwise buy it.
With The Perfect Deal Structure, you could sell your business to someone that works for you or someone that is passionate about owning that you think is a good fit, but they don’t have the finances to do it.
When I closed my two businesses, I thought a sale meant one thing.
Somebody hands you a big cheque. You hand them the keys. You walk away.
Nobody turned up with that cheque. So, I locked the doors instead. The joy of seeing their legacy live on, that emotion is a hard one to put into words.
What I know now is this; The big cheque is rare deal and often not even possible. The perfect deal is the one where the business keeps going and both people walk away better off.
Pete has run a lawn mowing business for 20 years. He has 80 regular customers, two trailers, a shed full of gear and one part-time worker. The business makes about $100,000 a year after all the bills are paid. That includes Pete's own pay. He wants to sell his business for $200,000
Pete is 64. His knees are done. He wants out.
Jess is 31. She works for a big landscaping company and knows the work inside out. She has $30,000 saved. She does not have $200,000.
On their own, both of them are stuck.
Pete thinks nobody will pay what the business is worth. Jess thinks she can never afford a business like Pete's.
Both of them are wrong.
Jess pays Pete $30,000 on the day. That is her savings.
Pete lets Jess pay most of the rest over four years, a bit every month, with interest. The money comes out of the lawns Jess mows.
The last part of the price gets paid if the customers stay with Jess. If they stay, Pete gets it. If they leave, Pete does not.
Pete works two days a week for the first three months. He drives Jess to every customer, introduces her, and shows her the jobs that take longer than they should.
In the next two articles I will show you how they got there and how the deal is built, layer by layer.
If Pete had closed, he would have sold his gear for whatever he could get. Maybe $15,000. Maybe less. The customers would have rung somebody else. Twenty years of work would be gone in a week.
That is what I did. Twice.
This way Pete gets the full price. He gets paid every month for four years, like a pension he built himself. He also gets interest on the money he is waiting for and is probably taxed in a lower tax bracket.
And he gets to drive past and see the trailers still going. The joy of seeing their legacy live on. That emotion is a hard one to put a number; ask anyone who has closed a business and they will tell you.
The joy of seeing their legacy live on, that emotion is a hard one to put into words.
Jess gets a business with 80 customers on day one. She does not have to start from nothing, and hope people find her.
She only needs $30,000, not $200,000. The business pays for itself.
Pete is still owed money, so Pete wants her to win. He is not going to hide problems or let a big customer walk. If Jess fails, Pete does not get paid. That keeps everybody honest.
The ideal deal is built on real numbers. Not not what it did 10years ago, not what 'potential it has, not hopes, Not "next year will be big." actual figures.
You buy what the business made in the last 12 months. You check it in the books and the bank statements.
If it is not in the books, it does not exist. So always sell when the business is on a great year.
Remember swapping lunch at school?
You had a muesli bar you did not care about. Your mate had a packet of chips he did not want. You swapped. You both walked away happier, and nobody lost anything.
That is a win/win deal. It is not complicated. It is just rare, because most people walk into a business deal thinking somebody has to lose.
They are wrong.
I have seen it happen. A buyer squeezes the seller down to a price that hurts. The buyer feels clever for about a month.
Then the seller stops returning calls. He does not introduce the buyer to the best customers. He does not mention the machine that breaks every winter. Why would he? He feels robbed.
It goes wrong the other way too. A seller pushes the price so high the buyer can never make the payments. Two years later the business is going backwards, and the seller is back where he started, only older and more tired.
A deal that only works for one side is not a deal worth doing.
Here is how Pete and Jess did it. You can do the same.
It is almost never just the price. Jess sat down with Pete and asked him straight out: "What does a good ending look like for you?"
Pete said four things.
Notice only one of those is about the price.
Jess was honest. She had $30,000, not $200,000. She needed the business to pay for itself. She needed Pete to show her the ropes.
You do not win trust by hiding your position. You win it by putting your cards on the table.
They went through the last 12 months together. The books. The bank statements. The customer list.
No arguing about what the business could make one day. Just what it made.
This is the lunch swap.
Pete cared about Dave keeping his job. That cost Jess nothing, because she needed a worker anyway. Easy yes.
Pete wanted monthly income. Jess wanted to pay over time. Same thing, looked at from two sides. Easy yes.
Jess wanted to know that the customers would stay. Pete was sure they would. So they agreed that part of the price only gets paid if they do. Pete backs himself. Jess is protected.
Every transaction gave one person something that mattered a lot to them, at very little cost to the other person.
In a win/win deal, both people have something to lose if it goes wrong. That is a good thing. It means both people work to make it go right.
Pete is owed money, so he wants Jess to succeed. Jess has her savings in it, so she shows up every day.
The best deal in the world fails if the new owner does not know how to run the place. Pete agreed to work alongside Jess for three months. Every customer met her. Every trick got passed on.
Put the deal on paper in plain words. Then get an accountant and a lawyer to look at it before anyone signs. Every time. No exceptions.
Ask these four questions before you sign.
If you answered no to any, you are not finished yet. Go back to step 4 and keep trading.
The goal is not to beat the other person. The goal is a deal you are both still proud to have done in a year from now.
Find out what they want. Tell them what you need. Trade the things that are cheap for you and precious to them.
That is how good businesses change hands instead of closing their doors.
I am going to be straight with you. There is no perfect deal structure.
Unless the structure fits both the buyer, the seller and the business.
When I was closing my businesses, I thought a deal was one big block of cash. Pay it or do not. I had no idea you could build a deal out of smaller pieces, stacked on top of each other, each one doing its own job.
Think of it like building a sandwich. The bread holds it together. Then you add the fillings each person likes. Nobody eats a sandwich that is all bread.
In the last example, Jess found out what Pete wanted and told him what she needed. That was the strategy.
The structure is how you turn those wants into a deal on paper. Each want gets its own layer.
Here is how to match them.
|
If someone says... |
Use this layer |
|
Seller: "I want some cash on the day." |
Deposit from the buyer |
|
Seller: "I want money coming in every month." |
Vendor finance |
|
Buyer: "I do not have the full price." |
Small deposit plus vendor finance |
|
Buyer: "What if the customers leave when you go?" |
Earn-out |
|
Buyer: "I do not know how to run it yet." |
Handover period |
|
Seller: "I am not ready to let go of all of it." |
Staged buy-in |
|
Seller: "I want to keep the building." |
Keep the property and lease it to the buyer |
Deposit. The cash the buyer pays on the day. It shows the buyer is serious and has something to lose.
Bank loan. Some buyers borrow part of the price from a bank. It is optional. Plenty of good deals never touch a bank. Credit Cards are also an option for deposits
Vendor finance. The seller lets the buyer pay part of the price over time, with interest, like a loan. The money comes out of the profit the business makes.
Earn-out. Part of the price only gets paid if the business keeps performing after the sale. If the seller says the customers will stay, this is where he proves it.
Handover. The seller stays on for a set time to teach the buyer and introduce the customers.
Staged buy-in. The buyer buys part of the business now and more of it later. The seller lets go one step at a time.
Keep the property. The seller keeps the building or the land and rents it to the buyer. The price goes down and the seller gets rent for years.
You do not need every layer. You pick the ones that answer what each person said they wanted.
Pete's business costs $200,000. Here is how they stacked it.
|
Layer |
What happens |
Amount |
|
Deposit |
Jess pays Pete on the day |
$30,000 |
|
Vendor finance |
Jess pays Pete about $3,100 a month for 4 years, with interest |
$130,000 |
|
Earn-out |
Paid in two lots at the end of years 1 and 2, if at least 70 of the 80 customers are still with Jess |
$40,000 |
|
Handover |
Pete works 2 days a week for 3 months, meets every customer with Jess |
Part of the deal |
|
Total price |
|
$200,000 |
The $3,100 a month is an example using 7% interest. Your numbers will be different. Your accountant will work out the real ones.
No bank loan. No staged buy-in. Pete does not own a building, so there is nothing to keep. They did not need those layers, so they left them out.
Pete gets $30,000 on day one. Then he gets a payment every month for four years. Because of the interest, he ends up with about $219,000 in total, not $200,000. Dave keeps his job. Pete is done after three months.
Every single thing Pete asked for is in there.
Jess only needed her $30,000 savings. The business pays the rest. In the first two years money is tight, because she is paying the monthly amount and the earn-out. From year three it gets easier. After year four, the whole $100,000 profit is hers.
If the customers walk out, Jess does not pay the $40,000. She is protected.
Every single thing Jess needed is in there too.
Should things go wrong, a good structure looks after both people.
The seller keeps a hold over the business until he is fully paid. If the buyer stops paying, the seller can take the business back.
The buyer gets it in writing exactly what the earn-out targets are, so nobody argues later about whether they were met.
Always have an accountant and a lawyer who understand aquistions set it up.... Every deal, every time.
The sellers remaining payment is the buyers insurance policy. The buyers success is the sellers remaining payment.
The Win-Win deal has a few things in it. Every one of them matters.
That last one is the real test. A year after the deal, do they still pick up each other's phone calls?
If yes, it was a good deal.
Most people fight about the price. The price is only one layer.
When you understand the layers, you stop arguing about one number. You start building a deal that gives each person what they actually need.
That is how Jess bought a $200,000 business with $30,000. That is how Pete got more than his asking price.
The money is not in price. It is in the structure.
Somebody is going to buy that business. It may as well be you.
If you want to get clear on the perfect deal stratagies and how to buy and sell business Shaun McKay's book Deal Ready covers it all. For a limited time when you join the Biz Buy Internation Marketplace you get copy for free or purchase a copy from Amazon.
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