1. Getting Bad Advice:
Naturally business owners consult with peers who have sold companies and many times are given inaccurate information about what they received from the sale of their own firm. The sale price always looks greener on their side of the fence, but the information is usually incomplete. For example, an owner may claim to have received “x” but in fact, real estate might have been included in the deal, or the accounts receivable or cash in the corporate accounts was included which would tend to inflate the multiple of cash flow or ratio to sales that the owner received. Frequently, I see owners initiate the selling process with their minds already made up about a sales price based on this type of misinformation.
Bad advice can also come from brokers with little experience, or in some cases, general practice attorney’s not accustomed to M&A procedures. The bottom line is that bad advice can distort success in the sales process. Owners are better advised to listen to the council of M&A professionals with successful track records before they start to form opinions of the value and saleability of their own firms.
2. Drawing a Line in the Sand in the Beginning:
In addition to having a predetermined price in mind sellers often have formed their own opinion as to the deal structure and are not willing to take any seller financing. That’s certainly understandable, but to insure success in the M&A process it is better to wait until the proper analysis has been finished by industry professionals before the lines are drawn.
3. Not Being Organized to Sell
As with any other important business decision or process, selling a company takes adequate preparation, even before seeking out a broker. The seller should be aware that it takes a lot of time on their part to get to a successful closing. Most sellers already have a full-time job successfully running the firm so I frequently request that they enlist a key person or trusted employee to be available to assist in the paperwork flow between CPAs, attorneys, brokers and bankers.
Additionally, the paper trail for owners discretionary income will need to be well documented as to the relationship of line items from the general ledger to financials and then to the final tax return. This clean up needs to be completed before the selling process starts. Any unique entries or one-time expense line items will need proper footnoting to avoid concern from the buyer market later.
4. Not Having an Adequate Support Team
It is important to have specialized help in all areas needed to complete the transaction. Sellers are well-advised to have business brokers with sufficient experience in closings of companies of comparable size. Sellers should ask for and check out seller referrals. Also, ask for examples of the brokers marketing packages used on prior sold transactions and meet the brokers support staff before signing a listing agreement.
The practice of law is as specialized as medicine. You would not want your family DO taking out your gall bladder. An experienced M&A attorney can be money-in-the-bank for specialized help in the sale of the company. Tax law is specialized as to the M&A process so utilize a CPA that specializes in designing deal structure with the broker to best serve the sellers interests. In addition, an experienced business broker should have the right connections in all of these areas to make introductions to their seller client.
5. Not Being Familiar with the Selling Process
Today, internet research makes it possible for sellers to easily become acquainted with most facets of the M&A process. There is no excuse for sellers contemplating selling their firms to not take time to become familiar with the major steps in the sales process, and the terminology involved. A minimal amount of study to get familiar with the process can greatly aid the transaction. Arm yourself with information!