It seems easy, right? Build your business and when the timing is right sell it to the right buyer. It should come as no surprise that the skills it requires to develop a successful company differ from the techniques and strategies and experiences employed by Mergers & Acquisitions professionals. We've compiled a quick list of common errors made by well-meaning CEOs who discover the complex world of deal-dynamics and the often complex transaction process.
- Incomplete Books, Records & Contracts
There's no getting around this one. When it's time to sell you'll need to have your house in order. This means your business data must be organized and ready for review. Due diligence by any potential buyer will identify any inconsistencies, omissions or irregularities in your company's historical record keeping. While it's simply good business to be organized and resolve any paperwork issues, in terms of selling, fuzzy records are definitely a deal breaker.
- Lacking Credible Financial Projections
Historical data is We've discussed the importance of historical data. Forecasting future growth and sales projections are just as important. Buyers will be looking for credible financial forecasting with data to back up those numbers. Be prepared to provide the metrics necessary to support future financials.
- Failing to Create a Competitive Sales Environment
Negotiating with only one buyer shifts power away from the seller. Creating an opportunity for multiple bidders or at least potential bidders creates a competitive situation which can be leveraged to obtain a higher price. Company owners who want to arrive at favorable deal will want to create the an air of competition around the sale of their company. This is where a qualified deal team shows its value. Sellers who go the path alone will miss out on what could have been a far more favorable deal by only working within their own social and professional circles. By contrast, an M&A advisor will be able to create a competitive environment for the sale by tapping the right potential buyers.
- Failing to Outline Key Details in a Letter of Intent (LOI)
This stands out as a common and painful seller error. The letter of intent is crucial for ensuring the likelihood of a favorable deal for the seller. Once the letter is signed the power swings to the seller. Therefore the contents of the LOI are extremely important for the seller to lay out correctly. The LOI should include price, payment terms, scope and length of exclusivity (if any) and a host of other key terms to negotiate. The importance of the LOI cannot be overstated. - Neglecting Day-to-Day Business During the Sales Process
This is a common stumbling block for business owners who decide to hang out their "for sale" sign. While the prospect of selling your business is exciting, it it crucial to remember that a successfully run organization is a desirable one. Take your hands off the wheel for too long and you might find your organization has been set adrift. Savvy owners value their time and recognize their strengths well enough to know when to hire M&A specialists to handle most of the process, thus allowing them to focus on their business during the entire transaction process.
- Not Hiring an M&A Specialist
Without fail, the mistakes above can be avoided by building the right deal team. Many a CEO has been surprised by the tenacity and skills required to negotiate the sale of their company. Their proximity to the business clouds their vision and makes the process even more difficult. An experienced M&A partner will allow the owner to continue focusing on his or her business during the transaction process. It also means the company will have the opportunity to be bid on by a number of buyers, thus increasing the opportunity for a more robust closing price. It is hard to put a value on the many benefits this outside expertise brings, but the peace of mind of letting a trained pro handle the delicate negotiation dance is well worth it.
Are you thinking of selling your business? Take time to develop a qualified deal team to ensure you avoid these common pit falls.
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