Financial buyers must put money to work, but they don’t do it foolishly. The deal a private equity firm doesn’t make allows them to keep their jobs. The deal they do make creates a liability. With that buyers will uncover everything you don’t want them to uncover. When the time comes to selling your business, avoiding mistakes can cost hundreds of thousands, or even millions of dollars. Your business is likely the single largest financial asset you have and is an excellent way to secure your financial future for generations. It can also cause tremendous hardship if done wrong. There’s three people you must be above board with at all times – yourself, your advisor or investment banker and your buyer. There is no gray with integrity.

Every successful business owner goes through the uncomfortable yet necessary process of ‘opening the kimono’ showing the business’ flaws to their M&A advisors. We proactively deploy strategies to cure or minimize these flaws, and we can predict and prevent downside risk if we know what we’re working with. We present your opportunity to the universe of buyers as the most attractive opportunity free of plastic surgery and makeup. We know there’s issues, flaws and mistakes in your business. Buyers know there’s issues, flaws and mistakes in your business. It’s no secret. All we ask is don’t lie or try to hide it.

“The two greatest mistakes a business owner can make is hiding or minimizing problems from your M&A advisor and hiding or minimizing problems from the buyer.” – Scott Spector

While it may be your style or approach to gloss over or perhaps omit mentioning certain issues or problems with vendors, customers, or employees, it’s fatal to do so with your advisory team. You cannot have any errors of omission and expect to sell your life’s work, because your integrity will be questioned at every step moving forward. Whether there’s a prior sexual harassment claim or questionable financial reporting practices, revealing everything ‘warts and all’ to your advisors is imperative. Failure to do so will destroy the sale of your business.

Hoping no one will discover your company’s imperfections is not a sound strategy entering a business case. No matter what, a buyer will uncover everything – good and bad – about your business. We’ve seen owners at all revenue levels try to ‘smoke it by us’. When we uncovered improprieties, we walked away. Most buyers walked away; the couple who stuck it out received a greatly reduced the price. Unfortunately, some sellers don’t see the value in revealing their companies’ problems to buyers as well.  If you claim to put your cards on the table and then hide one or two up your sleeve, your credibility evaporates; gone like Kaiser Soce!

Similarly, you must provide all the information you can, no matter how insignificant or immaterial you think it might be. For example, you will be required to list every contract to which your company is party. While you may not believe that a particular written or oral agreement is important, you must let the buyer decide. We work with your attorney to encourage and guide you to collect all of the information about your company making it available to the buyer.

Below is a list of some of the most common mistakes made when selling a business and how to avoid them with your company.

Inadequate Preparation
There are multiple workstreams you need to pay attention to ensure your documents and processes are to standard –  Financial, Accounting, Tax, Strategic, Operational, Customer Ecosystem, IT, Culture, Legal, Environment. It’s more than current recordkeeping and business history being well documented. Before there’s any thought of selling a financial asset establishing and maintaining a current data room or shared drive of essential documents makes good business sense; what was once called common sense. It’s never a question of ‘if’; it’s always a question of ‘when’ it hits the fan.

Appearances, Habits, Behaviors & Perceptions
There’s the pain of regret and the pain of discipline. Your business is aligned towards one or the other. Stealing a page from automotive OEMs, practicing a living a 7S habit ensures everyone is doing their part on a daily basis to maintain the established standards ‘around here’.

Not unlike selling a home, you would likely do everything possible ensuring the interior and the exterior are as attractive as possible for potential buyers. Failing to be adequately prepare would lead to longer days on the market and perhaps a much lower selling price than you hoped for. This appearance also aligns with your own leadership habits, behaviors and perceptions from everyone associated with your business.

• Do you have personnel issues? Take care of them.
• Do you have taxes due? Pay them.
• Are there problems with your record-keeping? Fix them.

Lack of attention to the details will be a concern to prospective buyers. Failing to address them before listing the business for sale will cost you greatly.

Structure and Price
Too many business owners focus only on maximizing price with little consideration given towards the terms and structure of the deal. Sometimes a full-price offer isn’t good relative for what you must deliver post-closing. From carrying a seller note, or a strict noncompete to an undesirable earnout are just a few elements that turn a full price offer into a bad deal.

Procrastinate the Prep
Over 54% of business owners we’ve represented never considered preparing for a sale prior to engaging us. Of the remaining 46% that did consider preparing for a sale, 78% of them didn’t realize the value of preparation until we demonstrated how much money can be left on the table. A common mistake for business owners is to wait until the company is in trouble before thinking about an exit strategy.

Ideally, preparing to sell your business begins the day after the business is organized. The best time to sell a business is 1) when the market is trending upwards in your industry, and 2) when your business is trending upwards in revenue and earnings. When business owners wait until sales plateau, wobble or decline, you have health, partner or family disputes then the probability of attracting a buyer willing to pay fair value for your life’s work is lost.

Never Guess Your Business Value
Guesswork doesn’t exist in the business realm. Your baby, your life’s work is worth far more than its realistic value. Have you created a transferable asset? If there’s any hesitation in that answer or you don’t know, then the answer is no you haven’t. We encounter dozens of business owners every month who think they know what their company is worth. Sadly, the common sense escapes these amazing businesses because they all lack the experience in buying and selling same. Accurate appraisals or valuations are performed by certified valuation experts and not your accountant brother-in-law. A valuation takes into consideration the condition of your enterprise, the current state of the market, the value of similar companies in your area and industry, comps of similar transactions to what yours may be and many other factors.

Failure to Listen to Leverage Expertise
Many entrepreneurs are experts in their given business or industry. Very few have expertise in selling companies, and unless you’re Adam Coffey sit down and be quiet. Failing to leverage expertise is like putting a sign outside your business that reads, “I’m difficult to deal with!”

If you’re the type to pinch pennies to save a hundred dollars all while burning thousand-dollar bills in your operations, then please read no further. We’re not a good fit! You’re the type who’s constantly worried about spending money and ignorant about investing in your business to ensure it’s a cash-flowing asset. Your attitude will lead to unforeseen consequences and unrealized expectations that can be more costly to resolve than investing in professional assistance.

If we’re the first advisor you’ve encountered, then please seek out a handful more ensuring you find one you have good rapport with. It is important to find someone who has experience with selling businesses in your industry and has a great reputation with past clients and buyers. It’s similar to knowing bourbon drinkers vs. scotch drinkers.

Biden the Process
For forty-seven years sleepy Joe accomplished nothing abdicating his role as a representative of the people with little clue after his lobotomy. Too often, business owners hire a broker or investment banker and then expect them to DIFM do-it-all-for-me. The reality is hopefully no one is as motivated to sell the business as you are. When we present prospective buyers to you, it’s your job to impress them with your energy, integrity and story assuring them they can be more successful investing in the business. If you’re retired on active duty or just worn slap out, chances are high your business won’t sell.

Your Story Matters Most
You are the face of your business. Like it or not, prospective buyers want to see your passion for the enterprise, understand how you lead and how your people execute the vision and manage the process for you. Buyers must feel confident you will help them transition that success after the sale. Your sales job is to convince buyers your opportunity is THE opportunity and you’re someone they can trust.

Selecting the Wrong Buyer
There’s a deep appreciation business owners have with their company and their employees. Our clients tell us one of their biggest concerns is they want to feel comfortable trusting the buyer with their sweat equity. As much as the buyer is observing you for trustworthiness, you want to ensure the winning buyer is trustworthy.

Preparatory diligence is as important as confirmatory diligence ensuring sensitive information and key financial details don’t fall into the hands of bad actors. Don’t give anyone anything without consulting with us and your M&A attorney first; again, NOT your brother-in-law. We will weed out the “tire kickers and window shoppers,” as they can deeply harm your sales effort and waste your time and ours.

The Most Important Relationship is the Prospective Buyer
To determine if a prospective buyer could be the right buyer, we will invest time with you in building a relationship with prospective buyers.

• Why do they want to buy the business?
• What makes the business important to them?
• How will they operate the business?
• How will the company culture continue?
• What are their long-term goals?
• Will they be reliable and easy to work with?

Getting answers to these questions will help you create boundaries for go/no-go buyers and gain leverage in the negotiation process.

Silence is Golden
99.9% of the time we want you to not say anything to anyone (we’ll talk about family dynamics later). Be careful about how and when your employees, customers, and competitors learn you are planning a business sale. Saying anything to customers, employees or vendors opens them, and you, up to a world of uncertainty, anxiety, and unnecessary problems. It is critical in maintaining a disciplined posture keeping all information confidential. Careless disclosure of confidential information can quickly run off the rails including losing the sale, vulnerable to legal disputes and loss of key employees. Loose lips sink ships and having the wrong people know about your business can hurt you, the buyer and the business’s value. There can be specific cases when it makes sense, or may even be required, to tell people outside your ‘circle of trust’, but we’ll green light you when that’s appropriate.

Changing Your Mind
Fear of the unknown is a seller’s knee-jerk reaction during a transaction as most have never been through a business sale. It’s literally like a 7-year-olds first trip to a haunted house. While these successful business owners hear their advisors’ words, counsel and information far too often, they’re not actively listening. Seller’s remorse has caused many business deals to collapse. Having a solid exit plan and leaning on your advisors feedback and guidance during the uneasy times will counteract negative feelings

Not Walking Away from a Bad Deal
It’s your business. It’s your decision. It’s not necessary to give equal time and attention to every offer. If you’re unhappy with the terms and conditions of a deal, or you have serious concerns, you absolutely have every right to put pencils down and terminate the negotiations. Let’s make sure we’re on the same page; this case may not be your last opportunity. In some instances, it is appropriate to extend your sales posture signaling you’re willing to walk away which may influence a buyer to present a more favorable offer or better terms.

Your Ego & Transition
Once the sale is complete, your work is not over! Buyers want you around to answer questions, provide clarification and introductions where appropriate. The buyer may expect you to remain with the company temporarily (less than a year) or longer (12-24 months) to transition aspects of your operations.

There will be an administrative exchange of information, any warranties and promises must be honored and there may be problems to solve or legal issues to address. Coming to a mutual agreement is essential to discuss what the transition process looks like before the sale is done.

Panic Selling
Selling your business in a rush loses leverage. There may be reasons beyond your control (death, illness, etc.) making time an enemy to sell. The boy scout motto is abundantly clear in selling your life’s work. Having your business prepared for a sale at anytime minimizes time constraints ensuring you’re not accepting sub-optimal terms or price. Patience is one of the most effective negotiating tools; allow yourself margin to sell on your terms.

Selling When Business is Down
The last three years of business performance are critical to a buyer’s perception of the business’ value. While TTM (trailing twelve months) is most important, a slow burn of revenue and earnings affect a seller’s perception of value. Selling on incremental increases and steady operations is where your business must be. Otherwise, it’s time to invest in a Grow Smart to Sell Smart timeframe. Too often owners think about selling when something bad happens. That perspective comes at a hefty price.

Comingling Catastrophe
It’s not uncommon for business owners to combine business or personal funds and expenses into the same entity. This makes it very difficult, if not impossible, to separate revenue and expenses between the business, and for an acquirer to be comfortable with the numbers. Personal is personal and business is business; keep it separate if you’re serious about selling.

Customer Concentration
If any single customer makes up 20-25% or more of your business’s revenue, a financial buyer will raise eyebrows if that customer were to leave after a sale. A strategic buyer won’t be as exercised. It’s not always easy or possible, but add enough customers and diversify to decrease dependency on any single or small group of customers. If customer concentration is too high, a buyer may rework their models eliminating that customer and revalue your enterprise.

Ignoring it Away
If I ignore them, they’ll go away! Nah you can’t ignore problems away. Any internal or external issue within your business will create due diligence rabbit hole, transition, holdback, earnout condition, 11th hour re-trade or worse case a lawsuit. You know what’s out there! Remember, whatever is hidden in the dark will be exposed. Be honest with yourself, your sales advisor, and buyer. We will find a work around, and if the buyer wants your opportunity bad enough, they’ll find a solution.

Time to Cure Major Changes
A common factor for business sellers in a Grow Smart to Sell Smart strategy is time required for significant changes in the business to return value. In the run up to a sale, assume the buyer will appreciate, approve and have confidence in your strategic direction. The changes and adjustments made are cumulative and will influence perceived value. Just because you fixed or added something to the business that improved the revenue and profit picture six months ago, doesn’t mean it’ll immediately add a significant price jump. Conversely, cutting necessary expenses for better perceived short-term margins will be noticed and can decrease the value. The right buyer will recognize and reward the right play at the right time for the right reasons.

Taxes Like Karma are a Bitch
The sale of a business can be taxing in many ways. Once we conduct an essential or certified valuation of your business we will convene with your wealth management advisor on your anticipated tax exposure. Uncle Sam is very interested in your business after the sale closes. Step 1 is know your value. Step 2 know your taxable contribution. Don’t let incorrect assumptions about taxes, fees, or your business’s value lead to poor business and potential retirement decisions.

Don’t Assume the Sales Motion
The sale of a business rarely follows how we all want it to break. There will be times you want to quit – don’t! You may not get a price you hope for, you may not get the terms you wanted and the process may take longer than expected. Everyone will make mistakes in your case and some are expected, others not and are almost always resolved. Our firmest policy is being flexible and adaptable; our hope is you can be also. Having rhythm of optimism and perspective will improve certainty to close. We will anticipate and predict many challenges, providing you with the why, how and what your options are to make the best decisions for you, your family and your employees.

Assuming You Can Start a Similar Business After You Sell
It may be obvious to some, but sometimes sellers don’t realize they cannot open a similar or same business after a sale. If you sell a business in an industry, a buyer will likely require a non-compete in that industry or geographic market. We will negotiate all NonComs on your behalf should that be a direction you choose to employ. Keep in mind NCs can apply to customers, vendors, or even employees depending on the circumstance.

Hiring Professionals That Don’t Specialize in M&A
We’ve seen a lot in 30+ years. The simple question is how many transactions like mine have you been a part of? Business sales have a world of differences and complexities from sales of other asset instruments. Business attorneys are not M&A attorneys. Accountants are not CFOs. We know you have great friends or family, but most don’t specialize in business sales to close a transaction. We’re sure they’re good at what they do just not selling your life’s work. Bottom line is you want the highest possible price for maximum value and a smooth process.