Selling a business is something that most business owners will only attempt once in their career. With an estimated 70% – 90% of their total net worth tied up in their business, they can’t afford to make a costly mistake, but their success in running their own business generally doesn’t prepare them to handle one of the largest and most crucial financial transaction in their life.
This is the second in a series of articles exploring some of the common pitfalls in selling a business.
Major Pitfall No. 2 — Not Understanding the Selling Process
Since most business owners only experience the selling process once, so it is understandable that they are not familiar with the number of steps involved; nor how to deal with the issues that frequently arise at each step. Not knowing how to deal with these issues — and/or not having a trusted, professional, M&A Intermediary for advice and direction — will put the seller at a severe disadvantage in negotiations and reduces the likelihood of ending up with the best deal possible.
Experienced M&A advisors can perform or contribute to a wide variety of tasks, which, when successfully executed, will maximize the seller’s return on the sale. Such tasks include: deciding when, where, how and to whom to market the business, and how best to promote its potential; determining what price to ask, or deciding when to go to market without an asking price; screening prospective buyers; maintaining and ensuring confidentiality throughout the process; developing financing alternatives for the buyer; working with the seller’s CPA, attorney and financial planner to assist in structuring the deal to minimize tax liability and maximize seller proceeds; and so on.
Business owners frequently realize the need for confidentiality, but have difficulty traveling the right path between not revealing anything at all and revealing too much too soon. Another common mistake is to assume that since a buyer has signed a non-disclosure agreement, it is now “safe” to reveal anything and everything the buyer may ask about. While all prospective buyers must sign a Non-Disclosure Agreement (NDA) before being provided even basic information about the business, and experienced M&A advisor will assist in determining early on which prospects are likely to be serious prospects and which are unlikely to ever make an offer, and limit the release of confidential information accordingly.
Even with a signed NDA from the buyer in hand, an experienced M&A advisor will stage the release of confidential information – such as interviews with key customers and managers, etc. — until it becomes clearer that the buyer is committed to making an acceptable offer.
If you know of a business owner who’s thinking of selling or buying a business and who might benefit from a free consultation with us, have them contact me at firstname.lastname@example.org
By: Mike Ertel, Transworld M&A Advisors