A few months ago, one of our dealmakers was contacted by a client who chose not to use us when marketing his company. He thought he would save some money and close a deal on his own after receiving our valuation of his business.
About six months later, in desperation, he called our dealmaker back and asked for help. Seems that he actually did find a buyer for his company, but since neither he nor the buyer had any experience in selling or buying a business, the transaction was close to falling apart. Fortunately, we were able to step in and save the deal and help close the transaction to the satisfaction of our client (and the buyer).
This story reminded me of the fact that if you are going to market a business on your own without the guidance of M&A advisors, that there are several key mistakes you need to avoid along the way. So here are just a few (there are many possible mistakes to make):
Of these three, the first one can be devastating. You need to realize that when you sell your company without help, it will cost you at least 1,000 hours of your own time spread over a 9 to 14-month period. Realistically you need to budget 70-100+ hours of time per month to close your deal. And since the most time-consuming piece of this process occurs during due diligence, the last 3-4 months will use up most of this time.
What we see far too often is business owners that literally stop running their businesses to focus on the sale. This can have devastating consequences because the base year, the fiscal year you are in when you are marketing your firm, is probably the most important year to business buyers.
When buyers are evaluating your company, the base year forms the starting point for the pro forma they create for their valuation models. If you have to break the bad news to them that your business is off 5%, 10%, or even 20% a couple of weeks before close, not only will this drastically impact the value they pay for your company, it may actually scuttle the entire transaction.
So watch out for being distracted from running your company while in the process of selling your business.
The second key mistake to avoid is providing the buyer with confidential information without protecting your company. Let’s face it, your competitors would like nothing more than to find out key facts regarding your business. Is this legal, moral or even ethical? No on all counts; however, that doesn’t stop it from happening. So, before you provide your offering memorandum (the 60 to 100-page document disclosing everything about your company), do two things:
Although doing both these steps will not protect you 100% from an unethical competitor, it will go a long way in keeping at bay those wishing you ill will.
Finally, the contents of your offering memorandum (and your one-page teaser that you distribute to get buyers interested) needs to be absolutely accurate while at the same time painting a picture of your company that will get lots of buyers to sign indications of interest and eventually close a deal with you.
Just as with the first point above, there is nothing worse than getting to the 11th hour with a buyer only to have to disclose something you left out or something that was in error in your documentation. Both can effectively destroy deals and once a deal falls apart, it is very, very difficult to get that buyer back on board.
Right now, buyers have substantial capital available to them. What they lack is time. To spend three months in due diligence only to lose a transaction at the last moment turns buyers off.
Make sure that what you provide is factual, accurate, clear and shows your company honestly, both strengths and weaknesses. Naïve sellers often think they can hide bad news until after a deal closes. Not only is that illegal, it rarely works because savvy buyers will send you 200-300 questions in their due diligence checklist. Trust me, the truth will come out.
These are but three of the mistakes you need to avoid if you head to market without M&A guidance. There are dozens of others, all of which can scuttle any deal. If you want to learn more about what mistakes to avoid, you should attend one of our complimentary exit planning conferences. You will gain a wealth of information about how to sell your business the RIGHT way.
To learn more, reach out to us at 972-232-1121 or use the following links:
And no matter what, be prepared to focus on the three key mistakes outlined in this article. Doing so will give you a better chance to close a deal for your business.
By Carl Doerksen, Director of Corporate Development at Generational Equity.
© 2018 Generational Equity, LLC. All Rights Reserved.
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