The 7 habits of a high volume broker office
The 2nd habit
Creating a timeline and setting expectations.
By Stephen Mariani
Timelines keep everyone on track and hold each party accountable!
Your listing has an accepted offer, congratulations. But you know better than to count the money just yet. We typically see about 30% of the deals fail to close for a few reasons, many of which can be avoided.
After meeting with the potential buyer and seeing his excitement in your listing, what is the next thing we see high volume offices do? Well, it begins with the understanding of both parties and the commitment to completing the transaction. What we usually see the intermediary do next is sit down with each perspective party and address the next few steps. When speaking with the buyer it is appropriate to set expectations earlier rather than later. If this is a buyer you have previously dealt with then you might have a better understanding of his plan and expectation, if he is new to your office it may not be so easy. Either way you should now be laying out a timeline that works for everyone. It’s not about demanding things getting done to your liking, but it is about setting expectations from both sides. Being able to hold each respective party accountable to the other and understanding who is responsible for providing what information to which party. Here is a small list of how we typically see deals move forward after an LOI or offer has been accepted. Keep in mind that this buyer has already been pre-approved by a lender, broker or someone to verify their ability to purchase a business of this size.
- Parties agree on the basic purchase price (offer) and surrounding business transfer information. Most items like A/R, A/P, inventory, seller financing, etc. are addressed in this document.
- The buyer begins their due diligence period of typically between 15 and 30 days as may be written in the contingency portion of the offer. They provide a list of items their advisors wish to review. (If you have been reading our previous writing’s, this could be a flag)
- Buyer must apply for financing (if required) and must submit an application within 7 days of accepted offer. Many times we see 5 days and the broker requests evidence of application submission.
- Buyer and seller meet to better understand the smaller operational items the buyer is inquiring about and staff positions.
- Many times before due diligence is complete the buyer has an actual loan approval which the broker reviews.
What happens many times, especially with larger transactions, is that the higher net worth buyers and their advisors try to be less forthcoming with personal and financing information. This is where these expectations should be discussed upfront and while presenting the initial offer. Once the buyer becomes secretive and fails to keep the broker updated, the process may begin to breakdown. I cannot tell you how many times it is weeks after the buyer is approved for financing that a broker calls us for an update on their buyer. This is NOT the norm we see from the higher volume offices at all as they monitor every step of the way to be able to better understand where the time delay is or when a buyer begins to lose interest in the transaction. We understand that not every buyer shows up at the closing table, but keeping them engaged will allow you to better understand where they are in the process and if they will not complete the transaction, better now than later. Serious buyers typically want all parties involved to be as attentive as possible to insure a smooth transition. When the buyer feels like the most important person in the transaction then they are compelled to continue forward.
Let’s see an actual timeline of the process and what that would look like:
- Day 1-Buyer submits an offer and it is accepted
- Within 7 days– Due Diligence begins and buyer applies for financing
- Within 2 weeks- All lender requests are completed and underwriting begins
- Within 3 weeks- Buyers secures loan approval and begins lender closing checklist
- Within 30 days -Buyer, seller, broker assist to complete closing items
- 45-60 days from acceptance -Closing happens
Based on the above timeline the milestones are the offer acceptance, lender approval and the actual closing of the transaction. When we monitor the process and understand when each step should be reached, we can also understand the hold up and focus to assist this buyer with any road blocks that may be encountered. Items that can extend the process may be lender availability, advisors scheduling, appraisals, business valuations and any third party reports required. Although the time may be extended it is always with all party’s involvement and understanding. The one thing to always keep in mind is that every person in the process has the same goal in the end—Close the transaction!
Setting up the timeline and expectation should be automatic in every transaction but so many times we don’t see that happen which leads to chaos, confusion and frustration. Don’t let lack of attention cost you a closing ever again.
AskDiamond@easysba.com is always available for specific questions regarding this or other SBA rules.