THE EIGHT COMMON
ERRORS BUSINESS SELLERS MAKE
by Fred G. Jager, President,
Hunter Wise Financial Group, LLC
After a year of virtual abstinence,
the marketplace for mergers, acquisitions and divestitures is
slowly coming alive. This is great news for sellers and buyers
of businesses, as well as the investment bankers who make these
deals happen. Before deciding to sell your business, however,
there are a number of elements to consider. Above all, its
important to avoid the eight most common mistakes business sellers
1. Not knowing the "real"
worth of the business. Although the marketplace may ultimately
determine the final sale price of a business, an owner needs to
know the value or worth of his or her business before placing
the business on the market. Not knowing the answer beforehand
is one of the most costly errors a business owner can make. Before
making the decision to sell, owners should work with someone qualified
to place a value on their company.
2. Not preparing the company for sale.
A company is certainly not a house, but the same attention to
appearance prior to sale is necessary. Financial and legal affairs
should be current. Anything a potential purchaser might want to
see should be up-to-date, accurate and available for review. To
ensure that the business is comprehensively presented and to avoid
mistakes, a document known as a selling memorandum should be prepared.
This takes time on the front end but will save countless hours
once the process begins.
3. Not being able to see the business
through the eyes of a buyer. It is only natural to see ones
own company in the most favorable light and overlook the inherent
blemishes or problems that exist. Sellers have to approach their
company realistically, knowing that a potential buyer will be
doing the same. Sellers who recognize the deficiencies of their
business are in a much better position to deal with the concerns
of the buyer. In fact, the best way to handle any potential problems
is to bring them up, yourself, in the very beginning. Remember
that buyers want to see solid management, good earnings and growth
and they expect to be purchasing the future, not the past.
4. Not really knowing the buyer.
The better you know the buyer, the smoother the transaction. The
more a seller knows about the buyers motives, interests
and background, the better-equipped a seller is to make informed
decisions about whether that individual is the right person to
operate the business. When final negotiations begin, knowing the
buyer can help resolve some of the issues that will arise. The
more you know about why a buyer wants to buy your company, the
easier it is to determine when to be firm in the negotiations
and when to be flexible.
5. Trying to sell the company to a
buyer who doesnt want to buy. There are usually many
more potential buyers than there are companies for sale. The question
is how serious are they? A buyer may indicate a great deal
of interest, then back out of the deal when it gets down to the
wire. Some buyers want to buy only on their terms and conditions,
some may have too many decision-makers to please, and others only
want to buy the "perfect" company. Wasting time on people
who arent serious about purchasing a company takes valuable
time away from those who really do want to buy.
6. Thinking no one knows more, or
better. Many business owners feel that no one knows their
business as well as they do. As a result, they think they can
do a deal by themselves. They think they dont need any help.
They believe they are lawyers, accountants, investment bankers
and outside advisors, all rolled up into one person. Then, when
the going gets tough, they become impatient and inflexible. They
blame others -- usually the buyer -- when the deal blows up. As
the old saying goes: "The attorney who represents himself
has a fool for a client." The same could be said for the
business owner who thinks he can sell his own company. Not using
outside advisors is a serious mistake.
7. Not understanding the structure
of the deal. Here is one scenario: An offer is presented;
the seller takes one look at the price, immediately says "no"
and refuses to look any further. In fact, the price, within reason,
is immaterial. The real crux of the deal is how it is structured.
Consider the negotiating axiom "You can name the price if
I can name the terms." The terms and conditions are important.
A seller may be ecstatic about price only to find that the devil
is in the details.
8. Not being able to walk away from
the deal. Too many sellers get so involved trying to put a
deal together that they dont see the big picture. They dont
realize that the deal isnt a good one and doesnt serve
their interests or those of their company. In other words, its
time to walk away from the deal and go on to the next opportunity.
Since the seller has invested a lot of time and effort, and probably
expenses, oftentimes he or she doesnt want to let the deal
get away. However, if the deal isnt right -- and cant
be fixed -- there is no other choice. Much better not to do the
deal then to do a bad one!