Top Ten Mistakes
MISTAKE #1: Selecting the Wrong Buyers
Forget the obvious. Sophisticated buyers who have strategic acquisition goals and are willing to pay accordingly are some of the best yet unexpected buyers. Public, private and international buyers often pay premium prices to acquire seemingly ordinary businesses that offer a synergistic advantage to their current operations. Too many business owners waste valuable time and effort on potential buyers who, typically, will pay the least. Vendors, customers, employees or competitors frequently lack the means and motivation to pay what a company is really worth. These are usually the buyer of 'last resort'. Back to Top
MISTAKE #2: Dealing with Only One Buyer
Multiple buyers create a competitive environment with a sense of urgency. This tends to maximize the sales proceeds from the business and facilitate the transaction - key benefits to the seller. They also tend to provide a seller with multiple options from a deal structure standpoint and perhaps more importantly multiple buyers allow sellers to choose their preferred successor. A single buyer can gain control of a transaction and weaken the seller's negotiating position. Without other prospects, the seller has fewer options and limited leverage to obtain the most beneficial price and terms. Back to Top
MISTAKE #3: Selling at the Wrong Time
Timing is key to maximizing the value of a business. The time when a business enters the market can determine how quickly it sells and at what price. Selling when the market is right presents an opportunity to maximize proceeds. On the other hand, entering a market that may be less than ideal could substantially erode value. One of the costliest mistakes is to allow factors such as age, unplanned retirement and other similar considerations to dictate timing. Taking control of the process means being ready to act when the time is right. This means being proactive, preparing documentation, watching the market, testing the market and constantly reassessing exit strategy objectives as they are affected by external factors and changing market cycles. Back to Top
MISTAKE #4: Not Knowing or Understanding the Value of the Business
Value is not obvious, nor is it constant or consistent. The value that an accountant places on a business can vary significantly from its ultimate value in an M&A transaction. One focuses on past performance and the other looks to the future. One relies on tangibles, while the other examines off balance sheet assets such as customer lists, proprietary technology, brand names, organizational strength and other intangibles or unique aspects. Some business owners assume that value can be determined by a single accounting formula or a multiple of past revenue or profits. These informal valuations generally apply averages and disregard the vast differences among individual companies. Oversimplified formulas can result in missed opportunities when compared to values returned through a competitive and professional M&A process. Back to Top
MISTAKE #5: Mentioning a Price
An old adage in M&A states, 'whoever mentions price first, loses' or 'be careful of what you ask for; you may just get it'. Putting an asking price on a company will limit sale proceeds. For sellers, it pays to focus on value - a company's optimum earnings potential, its dividend-paying capacity and potential return on investment. This focus - in combination with a carefully structured M&A marketing plan that properly positions the business in the marketplace with accurate and compelling documentation, access to the right buyers and favorable timing - will serve to determine optimum market value: what a buyer is willing to pay. Back to Top
MISTAKE #6: Improper or Incomplete Documentation
You don't get a second chance to make a first impression and the stakes are high. Quality documentation is essential to attracting the attention of premium buyers - and capturing their interest. Documentation prepared from the perspective of potential buyers can turn a company's past into a valuable, saleable future. Complete and well-prepared documentation will present a realistic, defensible foundation for the company's value and substantiate buyer expectations of future earnings. Without quality and professional documentation, premium buyers may not dedicate their valuable time resource to pursue the potential acquisition or at least will view the opportunity as a potential bargain for them. Back to Top
MISTAKE #7: Not Seeking Professional M&A Advice
The sale of an entrepreneur's business is frequently the largest and most important financial event of his or her life - for most, it is an opportunity that will be presented only once. The successful sale of a business requires a carefully planned and methodically structured process in which each step is done right - the first time - when seeking to maximize the financial reward. While owners are experts at successfully running their companies, few are prepared to navigate the complex M&A process and, therefore, are at a distinct disadvantage. The right professional M&A representation will provide invaluable advice, support and representation - most importantly, the benefit of experience that can make the difference between a successful transaction and a missed opportunity. Back to Top
MISTAKE #8: Not Clearly Understanding Buyer Motives
Understanding the buyer's motives - and why a particular company may be important to them - can be of great benefit to a business owner when the goal is to maximize value. For many corporate buyers, acquisitions are an integral part of a preferred strategy for achieving growth and expansion goals, improving operating efficiency and/or increasing profitability. Many have found that its easier and more cost and time effective to buy market share rather than build it internally or 'organically'. Business owners who can view the M&A sale process from the perspective of potential buyers tend to benefit the most when it comes to maximizing their exit options and sale proceeds. Back to Top
MISTAKE #9: Focusing on the Past
All too often, companies that enter the market are not properly positioned and packaged and, therefore, fail to capture the interest of serious buyers. Owners of these companies focus on the past performance of the business and base its worth on valuation myths, multiples or averages that will generally result in an unrealistic estimate or perception of value. In addition to considering their primary strategic or synergistic acquisition goals, buyers will base their decisions on the company's future earnings potential and its ability to produce the desired return on investment. Business owners seeking to maximize value should - explain the past and sell the future. Back to Top
MISTAKE #10: Not Preparing a Formal Exit Plan
Every business owner will someday exit his or her company - failing to proactively choose the time and circumstances can be costly. The M&A market, timing and internal dynamics of the company may be opportune even through the owner is not ready. If an owner does not proactively prepare for the time when he or she will leave the business, the event is not likely to yield the expected or desired monetary return. Proper planning places the business owner in control of why, when and how to exit. Done poorly, or not at all, there is a risk of being controlled by circumstances and minimizing the financial rewards. Back to Top
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