Owner to Owner
Building a business is a marathon, but crossing the finish line requires a specialized strategy to protect the legacy you’ve built. This owner-to-owner forum connects Northwest Arkansas entrepreneurs with the veteran CPAs, financial advisors, and fellow business owners who understand the realities of value, transition, and deal structure. Through practical, experience-based conversations, we bridge the gap between building a company and successfully navigating its sale. Tune in to gain the actionable insights and local expertise needed to turn your years of hard work into a seamless, high-value exit.
Owner to Owner
Ep. 4 - Deal Certainty: Securing Capital Before You Sell
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
Undisclosed issues and messy financials are the fastest way to kill a small business acquisition. If you are a business owner thinking about your eventual exit, waiting until you are ready to sell to talk to a bank is a massive mistake. In this episode we are joined by Megan Lahay, VP Commercial Relationship Manager at Encore Bank, to break down exactly how buyer financing dictates the success of your deal.
We get into the critical mechanics of what makes a business truly bankable before it ever hits the market. The conversation covers the necessity of buyer pre-qualification, the timeline for evaluating cash flows, the importance of clearing UCC filings, and why building an exit team is nonnegotiable. Megan shares a powerful perspective for sellers to remember throughout the process, noting that while an owner's valuation is often tied to emotion and personal attachment, cash flow is absolute fact.
The hardest part of selling a business is confronting the realities of bad debt and operational dependency. A buyer stepping into an acquisition encumbered by hidden liens or a business model reliant solely on the current owner's personality will immediately lose confidence and walk away. You will walk away from this discussion with a clear understanding of why you need to clean house 12 to 24 months in advance to ensure your financials trend upward and your operations can survive without you.
If you care about deal certainty, protecting your business legacy, and executing a flawless exit strategy, you will get a lot from this. Please make sure to subscribe and share this episode with other local business owners who are building value for the future. What is the biggest operational bottleneck you need to clean up before bringing a buyer to the table?
This podcast is for informational purposes only and does not constitute legal, tax, or financial advice. Always consult with your professional advisors before making any business or investment decisions. If you're thinking about what's next for your business, remember the best outcomes are built well before a deal ever happens. Welcome to Owner to Owner, the podcast where Northwest Arkansas business owners learn how to build value, prepare for transition, and understand how deals actually get done. This podcast is sponsored in part by TransWorld Business Advisors of Northwest Arkansas. Your business may be worth more than you think. At TransWorld, we help you prepare, value, and sell your business the right way. Visit us at tworld.com forward slash NW Arkansas. Megan, welcome back.
SPEAKER_01Yes. Hi, Cam. How are you?
SPEAKER_00Second half of our conversation. For those who missed our last episode, our guest is Megan Lehay, Vice President of Commercial Relationship Manager at Encore Bank. And just to remind you about who Encore Bank is, it is a private boutique bank with a commercial focus that couples highly experienced and talented bankers with innovative technology to offer unprecedented levels of personal service and experiences to its clients through a hospitality-inspired concierge approach. And as I mentioned before, I'm actually a client of Encore Bank, and Megan happens to be my concierge banker. Yes, sir. Great relationship. If you don't know who your banker is, that's probably a sign you might want to think about that relationship.
SPEAKER_01Yes, for sure.
SPEAKER_00So Encore provides a full suite of financial products and services to businesses, business owners, professionals, their families, and contacts with purpose, passion, and precision. So our episode topic this week is what sellers need to know about buyer financing before going to market.
SPEAKER_01Yes.
SPEAKER_00Yeah. So first question for you is how can buyer financing affect deal certainty, timing, structure, and the likelihood of even closing?
SPEAKER_01Yeah. So a buyer's financing can honestly be the engine behind a small business acquisition, because if the financing isn't solid, the deal is not going to be solid. Um, so strong, clean financing can pack can impact everything from the start, the timeline, the structure of the loan and the deal, um the purchase agreement, even the selling price. So, because if a buyer comes in and is pre-qualified and already been vetted by a bank working with a lender early, that is going to help the deal close so much smoother for not only the buyer, but the seller and the broker. Um, and then also come with a fewer surprises because everything's kind of already been laid out there financing wise, um, which results in quicker closings, timelines, less headaches for everyone involved.
SPEAKER_00Yeah, you know, and um it it's really interesting the the point you just made, I think, around buyers being pre-qualified.
SPEAKER_01Yes.
SPEAKER_00Um, there's a couple of things. Uh a lot of time sellers like to focus on pricing. But one of the things that's most important in any transaction is that the seller needs to be continuously throughout this entire process focused on running the business. Because if they don't, they take their eye off the ball, then the business performance starts to decline, then the buyer's not interested anymore. Well, in order for the the seller to be to be able to do that, they need to feel confident. And one of the biggest areas of confidence is whether or not the lender is confident. Yes. If the lender says, Yep, you've got a good potential buyer here, they're pre-qualified. Let's see how we structure this deal. They can breathe a sigh of relief because banks do the math. They don't, they don't take this business lightly. They've already done their homework.
SPEAKER_01Yes.
SPEAKER_00And if the bank is confident, then you as a seller should be confident.
SPEAKER_01Yes. The bank has already evaluated the risk, usually already evaluated the financials of the buyer, um, checked their credit. All of those things have already been kind of boxes checked to get that pre-qualified, you know, status out there. It's just like buying a home. You wouldn't go out and make an offer on your dream house without knowing, can I even afford this house and get pre-qualified for this house? It's very much similar in buying a business.
SPEAKER_00The other part of that whole process is the timeline. So for a lot of sellers, uh, okay, buyers pre-qualified, how long is this going to take? And, you know, just having the bank communicate, okay, this is typically how long it takes for us to look at the, the, the, the whole deal and package the whole thing together can help manage their expectations and keep them focused on running the business.
SPEAKER_01Yes, 100%. The credit, the credit and cash flows are typically the process that takes the longest. Um, because we have a wonderful team of credit analysts and senior credit managers who are reviewing these deals at Encore Bank. And so if we have to go back to the buyer, if we have to go back to the business, request additional financials or something that's missing, you know, that can take days sometimes to get that information back in. And then it has to go back in line. So we want to make sure we have everything teed up and financials. That way the process and the timeline for closing the business and the acquisition can be very strainless.
SPEAKER_00Yeah. And I I will actually say to our audience, uh, having learned this from personal experience, um, if the bank says they need something, get it to them as quickly as you can. Uh, time is of the essence because the sooner they have it, the sooner they can work it.
SPEAKER_01Yes, 100%.
SPEAKER_00Yeah. So, what makes a business easier for a bank to finance before it goes to market?
SPEAKER_01So, if a business owner knows that he or she are going to be looking to sell their business, you know, bringing in the right broker, but also the right banker can really be the best thing that they can do. It'll allow them time to really understand their company's bankability, but then also ensure they have clean, clear financials to provide a lender and a buyer with full transparency and understanding. You know, as I said on the previous episode, banks love predictability. So working with a bank ahead of marketing your business can really give a much needed leg up in ensuring that your business appears low risk and then high reward so that you're attracting prime buyers.
SPEAKER_00Yeah. Um, I would say one of the biggest barriers to closing a deal that we see are um incomplete, unclear, poorly structured financials. Yes. Um, the clearer the financials are for everyone involved. Um, the bank is always the most seasoned at reviewing financials. At the same time, if the buyer can't understand them, then the deal will fall through because they'll lose confidence. I think another thing that really ranks up there is unclear operations. So a lot of what we offer um is just basic exit planning advice. Some businesses need more advanced exit planning. We actually have certified exit planners that we work with. But uh even at uh even the most seasoned businesses uh really, if they do just a little bit of exit planning up front and understand how well documented their operations are, how consistent the operations are, the bank wants to know that stuff as well.
SPEAKER_01Oh, 100%. Yes. We want to know that there's been a plan in place, again, that if the owner exits this business, it can still operate without that owner there.
SPEAKER_00Yeah. Yeah. And and, you know, a lot of times a business owner believes that their involvement in the business is one of the big selling points when in fact when you're trying to sell a business, it's a detractor. If you're if you're planning to sell the business and walk away, and so much of that business's success is tied on your personality, your ability to close a deal, your ability to cook, whatever it happens to be, you've got to be able to prepare your business to operate without you.
SPEAKER_01Yes, for sure. Yeah. And I think that's a hard pill to swallow for a lot of business owners.
SPEAKER_00Yeah. Yeah. It's yeah, it's not about you, actually. It's about your business.
SPEAKER_01Yes.
SPEAKER_00So, how do lenders think about valuation compared to actual cash flow?
SPEAKER_01Oh, yeah. So, you know, I have seen many business valuations that get sent to me for review, um, either by a broker or by a buyer who's wanting to purchase a business. And, you know, I think there's a lot of opinions around evaluations, you know, because really when it comes down to an evaluation is really sometimes based on opinion. Um, a business owner likely has poured their heart and soul into their business. So to them, it is priceless. Um, but a cash flow is fact. Yes. And my job isn't to tell a business owner what their company is worth, but to ensure the business can comfortably service the debt and not justify the price. Um, that's why a good, again, a good business broker, someone who can provide a very neutral, sound judgment on an evaluation is definitely key. Um, I'm also trying to make sure the buyer doesn't inherit a bad debt that the business is having to support. I firmly, you know, do believe that's why in my 18-year banking career, I've had clients who reach out to me for advice or come to me time and time again, even if I can't help them with their financing, because I do try to offer very clear, professional, transparent advice to them. Um, because I want to offer that full transparent advice. I don't want to close a loan just to close it. I'm looking out for my client for their success. I won't ever sugarcoat a deal to make it work. I think a lot of bankers out there maybe sometimes do that, but I'm not one of them. Um, I definitely prefer to be honest and clear with my with my clients. And so I want them to be successful and never want to see a client fail or fall in too deep on a deal just because it's not gonna work. Um, people appreciate and respect that honesty from their banker.
SPEAKER_00And uh same thing with a business broker. Well, we've we found every conversation on two things. One is confidentiality, and the second one is transparency. So when we're talking to a seller, one of the things that we talk about first is where are the skeletons in the closet? Every business has them. It's okay. What's not okay is not to disclose them because the number one deal killer is undisclosed issues that all of a sudden pop up right before closing. And typically what a buyer hears when they find something out new right before closing is what else have you not disclosed? Yes. And as soon as they get cold feet, the deal's off.
SPEAKER_01Yes.
SPEAKER_00So transparency is key. Uh, you mentioned bad debts or debts in general. Uh, one of the things that we always do when we're closing a deal is we always work with a title company uh to close the deal. We work with one that has experience closing on business deals, not just real estate, because about 90% of all small business owners are leasing. They're not owning their property. That's right. So working with a title company that goes through and checks for all of the liens, make sure that in the closing process, if that if there is an outstanding lien that it gets paid, so that if you're the buyer, you're buying a business free and clear. You're not buying it with all of this encumbered debt that you may or may not know the relationships that are involved. And that sort of transparency is really key.
SPEAKER_01Yes. I don't think a lot of people know that anybody can go out and file a UCC on your business. Um, there's really no stopping anyone from doing that. I could go out and file a UCC on your business today if I wanted to. So um, a lot of times that's a great tool is utilizing a title company or an attorney to properly do those UCC searches to ensure there's nothing out there that's lingering that either the business owner may or may not have known about, but the new owner will be able to get that rectified before they're signing ink on the paper.
SPEAKER_00Yeah. That's um transparency at every turn and at the right time in uh in the whole process is super important. Again, another good reason to get the bank involved early on, because like you said, um, having those candid upfront conversations with buyer and seller is part of the role that a good banker plays.
SPEAKER_01Yes, for sure. I want to be as transparent and honest with all parties involved. That way nobody feels like they're being gypped or cheated on or hid, you know. That's right. Like you said, no skeletons in our closet. Here it all is.
SPEAKER_00So speaking of that and speaking of timing, um, what should a business owner do 12 to 24 months before selling to improve their financiality?
SPEAKER_01Ooh, time to clean haps. This is honestly the time to clean up your financials, tighten your expenses. Um, you want to show consistent profitability. Like I said on the last episode, us lenders love to see trends that are going up and to the right, not down and to the left. So ensure that you have strong management on your team so that your business doesn't look dependent on you as the owner is another really important factor. It's sort of like staging a house for sale. You are making your business look as strong as possible for a prime buyer to come in and want to buy your business, but you're also wanting to have your financials clean and concise. That way, from the banker's perspective, they want to loan against your business. Um, the cleaner the business looks, the faster a lender can say yes. And then, like I said, you're going to attract a more prime buyer if everything looks clean, concise, well structured. And like you said earlier, that the business can function without you there.
SPEAKER_00Yeah, I you like like you've you said a couple of times, the the whole, you know, the graph needs to move up and to the right. Yes. The best time to prepare for um exit readiness is when nobody's looking at you. So before you talk to a lender, before you talk to a business broker, before you talk to anybody that might be interested in selling your business, start there. And uh it is actually a good time to talk to a business broker because we can give you a checklist or an exit planner can give you a checklist and you can start to look at, okay, I can do these things, I can do these things to clean it up. Certainly having a CPA um that's actually doing your taxes. Maybe you have a bookkeeper as well that's keeping up on things month to month. If your business is big enough and can support that expense, highly recommended. Um, it keeps you focused on the important things about running the business.
SPEAKER_01Yes.
SPEAKER_00Um, but but consistent business performance that's moving the financials up and to the right is always the most important thing to be able to do.
SPEAKER_01Oh, yes, for sure. And then, you know, like you mentioned, that's something that TransWorld helps with. But I know there's also people out there who provide, you know, strategic growth planning for your company. They'll come in, they'll do an evaluation. You may not be willing to or wanting to sell your business for another five or 10 years, but at least you can have somebody come in who's neutral, who doesn't have their heart and soul in your business. They're looking at it from a very factual standpoint and can give you tools and guidance that way. In those five to 10 years, they're ready to contact you and a business brokerage and a lender and find out, okay, I'm ready for my exit. I'm ready to retire or move on to new things. Here, here you go, here's my baby. But everything is all packaged and put together in a way that makes you look very attractive to both your lender and a buyer.
SPEAKER_00You know, and we often talk about the team that um a both a buyer and a seller want to surround themselves with whenever they go through a transaction like this. That in team includes a banker, it includes a financial planner or financial advisor, it includes a CPA, it includes attorney. Those four are kind of like the minimum number of people that you want to have around you. Uh, it reminds me of a conversation we had in a previous episode. Um, I've had clients where I've sat down with them, we've done the valuation, we've looked at what we could sell the business for, and they've brought their financial advisor to the table. I'd already gotten it uh the the deal pre-qualified, as a matter of fact. And all of that was down in at the table. And the big question for the uh the seller was is this number going to allow me to retire or not? Because that was their goal.
SPEAKER_01Yes.
SPEAKER_00You know, some um uh sellers actually want to go buy another business. And the same question applies. If they think about their business as a part of their overall financial portfolio and they think about what their goals are, then they've typically got a number in mind. And having one of those people sitting next to them, their CPA, their banker, their attorney, um, their financial advisor, to say, is this the number I need or not? Is probably one of the most important things they can do.
SPEAKER_01Oh, yes, for sure. I can't tell you, even on a not business purchase, um, just a client of the bank who wants to get a loan for something and I get their personal financial statement. If they are a business owner, they have a on a line item for their assets and they usually have an astronomically high dollar amount there. And my first question is usually like, is that dollar amount like what you feel the business is worth, or have you had this properly evaluated? That's right. Because that's, you know, like you just said, without someone, a CPA or a financial advisor actually putting their hands on your business and telling you here's what it's worth. Yep. You don't know.
SPEAKER_00That's right. That's right. And that's a that's one of the big services we we provide because uh it's interesting. Um, a buyer always has a bigger appetite than they probably can finance, but a seller always believes their baby is worth way more than somebody's willing to pay for it.
SPEAKER_01Yes. Yeah.
SPEAKER_00That's that those two things.
SPEAKER_01It can be a really catch-22 situation sometimes.
SPEAKER_00Yeah, it really can. It really can. Um, so Megan, that's probably a good place for us to wrap. Um, we've covered a ton in these two episodes. Um the key takeaway that I see from from this episode is that buyer financing affects much more than the buyer. Um, it can shape the timing, the structure, the deal certainty, and whether the transaction even closes.
SPEAKER_01Yes, for sure. And make sure you work with a good banker who knows their stuff and a good brokerage that can help you get you there.
SPEAKER_00That's right. You got it. Um, owners, uh, lender readiness should be a part of exit readiness. Yeah. Um, I think that's a good way to put it. Before we wrap, we're going to take time again for our local small business news segment, and we'll cover three stories worth noting. I think you'll find these of interest, so feel free to chime in. Um, the first one is that Northwest Arkansas's rapid growth is bringing in tremendous young talent, which is always a good sign. The Northwest Arkansas Business Journal just highlighted its 2026 Fast 15 class, under 30 leaders, uh, driving innovation across real estate, retail, nonprofits, and more. Plenty of energy and fresh ideas for small business owners to tap into through networking and collaboration.
SPEAKER_01Yes, that's great. I I love the Fast 15 list when it comes out every year. Um, I always look at it, I always look to see who I know on that list because inevitably I have met a few of those, you know, young professionals. And I'm probably one of the rare people who I love the youth and vibrancy of Northwest Arkansas. I live in Fayetteville, grew up there, and I'm actually really sad when the college kids leave every year because the summer just gets so quiet. And I just love like the youth and excitement that hardworking vibrancy professionals bring to our region. So I love looking at the Fast 15. I try to reach out to all of them on LinkedIn, congratulate them, even if I've never connected with them before, because you never know when you might run into them out here in the work field.
SPEAKER_00So yeah. You know, I went to um the University of Arkansas graduation um this past Saturday. And, you know, sitting there, I would I I should say one of the ceremonies. They have like seven because the university is so big. Absolutely crazy. Uh, and at the same time, there's this energy in the air because a lot of those uh graduates are gonna go in and they're gonna launch their uh their own business or they're gonna go join a startup. Um, having uh organizations like Startup NWA or Startup Junkie that actually coaches and helps them do that, uh, plus the whole ecosystem that we have in in Northwest Arkansas gives them a place to really launch their dreams without ever having to move.
SPEAKER_01Yes, no. And the Walton College also has, I can't remember the name of it off the top of my head, but they also have a small business department that helps people who are wanting to either start a small business or purchase a small business and they help them put together their business plan, their projections. So there's all sorts of resources and tools right here in our own backyard for people who want to explore that avenue after graduation, or, you know, if they're a seasoned professional and want to make a career change.
SPEAKER_00That's right. Yeah. And we see a lot of that as well. A lot of that. Um, the next one, uh, new initiatives like the Real Advanced Manufacturing Program are launching to help small and mid-sized manufacturers in Arkansas grow and create quality jobs. Combined with strong startup resources from startup Northwest Arkansas and others. There's real momentum for entrepreneurs' scaling operations or entering advanced manufacturing here in NWA. You know, that was something that really surprised me, but there has been so much work through nonprofit and for-profit organizations to build a manufacturing ecosystem in Northwest Arkansas. And a lot of that is advanced manufacturing. We're seeing a lot of it, I'm sure the that um, you know, Encore is seeing its share as well.
SPEAKER_01Yes, no, for sure. We're seeing a big uh CI opportunity, commercial industrial. And that's kind of what we're out there looking for, are those clients, because with them come those sticky deposits and those long-lasting relationships. Um, so yeah, we've definitely seen a growth here. I went through the Leadership Arkansas program, through the chamber, um the state chamber back in 22. And I was blown away at how much manufacturing we actually had, not just in northwest Arkansas, but across the state.
SPEAKER_00Right. And I think that's uh gonna continue to grow. I think we've got a very um, you know, the our legislature, our government, our governor, um, some of the things that are going on with um, you know, the lithium mining, but um the just the manufacturing infrastructure we have, there's room for more.
SPEAKER_01Yes.
SPEAKER_00Especially in Northwest Arkansas, there's room for more.
SPEAKER_01No, there is. And business, uh, big businesses want to move here because of the cost of living, but then also the fact that we are a very growing, dynamic, diverse culture up here in Northwest Arkansas.
SPEAKER_00That's very, very true. Uh, the last one we'll leave everyone with is that Northwest Arkansas continues ranking among the nation's top areas for business climate and growth. Yes. We were just talking about with Fortune 500 presence, university talent, and support organization like the Chambers and Startup Junkie, as I mentioned before, offering no cost consulting. It's an exciting environment for small business owners to hire, expand, and connect.
SPEAKER_01Yes, it is.
SPEAKER_00Yeah. And that doesn't matter. If you want to be um a barber, you want to open a nails salon, you want to open up advanced manufacturing, uh, whatever it is, whatever your dream is, uh there are plenty of people in Northwest Arkansas that can help you make it come true.
SPEAKER_01Yeah. No, you'll find support in every coffee shop. Yeah. And there's a lot of them here.
SPEAKER_00A lot of them. Um, Megan, thanks again for joining me. This was a lot of fun. A lot of fun. Um, and thanks for sharing your perspective on what owners and buyers should understand before a deal reaches the closing table.
SPEAKER_01Yes, I am happy to be here. Thank you for having me. And if anyone out there needs a good banker who will have your back and be transparent with you, I'm your girl.
SPEAKER_00That's it. There you go. Um, so thanks for listening to Owner to Owner. If you're thinking about what's next for your business, remember the best outcomes are built well before a deal ever happens. And that's a wrap for this episode. Thanks for listening to Owner to Owner. If you're thinking about what's next for your business, remember the best outcomes are built well before a deal ever happens.