Nashville is ranked as one of the top five cities in which to open up shop. Because of this, people flock to Nashville’s Music City to buy a business, and many current entrepreneurs are eager to sell for a hefty profit. We recently sat down with Nashville business broker Beacon Exit Advisors to find out if buying and selling are as easy as the city’s growth would lead potential buyers and sellers to believe. What we found out was that there is a lot of work involved and that many people have incorrect notions about both sides of an M&A transaction.

Q: Thank you for answering our call today. We have many readers who want to sell or buy a business in Nashville before the Athens of the South explodes. We would like to talk about the buying and selling process.

Beacon Exit: Absolutely. But the fire has already been lit. Back in January, the Nashville Business Journal reported that not only is Nashville the fastest-growing city in the south, it is also the fourth-best location in the US to open a business.

Q: Anyone who is visiting the area can see that both of those statements are absolutely true. Given the area’s growth, it is no wonder that Nashville has become a haven for entrepreneurs. We would like to ask about the buying and selling process. Is there any advice you can give to people looking to buy a business?

Beacon Exit: We would start by reminding them that the negotiation process can go on well after the letter of intent (LOI) has been signed. Further, if the LOI is not structured correctly, the deal can easily stall. Once an LOI is in place, there are still steps to take before a purchase agreement is ready for signatures.

Q: What kind of steps?

Beacon Exit: The big one is performing due diligence. This is the process by which a buyer digs deep into every aspect of the company. Essentially, performing due diligence is the best way to evaluate potential risks associated with running a new company. When you buy a business in Nashville, it is up to you to ask for every piece of evidence you need to make an informed decision. If issues are discovered, you will have more wiggle room.

Q: What about company debt? Is it true that a buyer always assumes the responsibility of paying monies owed?

Beacon Exit: When a company owes debt, it is usually paid off at the closing of the transaction. It is not common that a buyer assumes the debt of the seller. Most transactions are structured as “asset purchases” where the buyer gets the assets of the business (the “good stuff”), and the debt (the “bad stuff”) remains with the seller. 

Q: Do lenders always get involved? How common are cash sales?

Beacon Exit: It is extremely uncommon for someone to walk up to a business owner that has a valuable business with cash in hand. Instead, many excited entrepreneurs make an offer to buy a business but do not have the capital to see the deal through. While they may have honest intentions, if you are on the selling side, you might be better off asking about their financial credentials before setting up an initial meeting. A seller will normally be more comfortable negotiating with a potential buyer that has already been pre-approved for a business loan with their bank or other lender.

Q: Can you sell or buy a business without a business broker?

Beacon Exit: You can, yes. However, a business broker or experienced mergers and acquisitions attorney can keep you from making costly mistakes. Further, having a team on your side when you want to sell a business means that you have people in your corner handling the back-end aspects that would keep you from day-to-day operations. And during the selling process, you do not want to get stretched too thin because this can damage the business’s value, leaving you with far less of an investment than you started out with.

Q: That is a very good point. Speaking of an investment, is it ever possible to retain some ownership when you want to sell your business but don’t want to fully let go. If so, when is partial ownership appropriate?

Beacon Exit: There are a few instances when retaining a small amount of interest is appropriate. One of these is when your name is attached to the business. You might also plan to sell a minority stake; this is essentially taking on a partner who can provide working capital and professional insights while allowing you to continue making the decisions.

Q: You have certainly given our readers many things to think about, and we appreciate your insight. Do you have any final advice before we close?

Beacon Exit: We would advise potential buyers to be open-minded. If you are not willing to at least look out the peephole when opportunity knocks, you might miss out on the deal of a lifetime.

For more information about buying or selling a business in the Nashville area, please reach out to Beacon Exit Advisors at https://beaconexit.com.