Have you ever wondered why less than half of all businesses on the market for under $100 M actually get sold? While it seems like it should be fairly straightforward, such transactions have many factors at play and, therefore, many opportunities for things to go wrong. Based on our 30+ years of experience selling businesses, we’ve narrowed it down to four common mistakes that hold sellers back from success. If you’re asking yourself how to sell your business, keep these potential mistakes front and center.
The biggest reason for a failure to close the sale is that the business owners have an unrealistic idea about the value of their business. Let’s face it, you probably have no idea about the best time to sell your business. Many owners base their understanding of value on hearsay and rumors of what other owners claim to have received. The reality is finding buyers with adequate buyer purchase capital in business can be challenging. We have seen countless cases of sellers turning down appropriate offers only to be forced to sell their business for an even lower price a year or two later. An investment banker can guide the client through valuation with specific examples of similar-sized businesses in the same or complementary industries.
Another pitfall is waiting for a buyer to show up rather than hiring an appropriate professional to market the business. When a buyer is the only one biding and starts negotiating with the seller, the seller can figure out pretty quickly that they are the only bidder. The buyer will then offer a reasonable price and then renegotiate a much lower price during due diligence since there is no competition. An M&A marketer knows the questions to ask before selling your business.
Failure to hire skilled merger and acquisition professionals (M&A) can be a deal killer. Many sellers compromise by hiring an attorney who is not experienced in M&A, who may ultimately recommend a course of action that is not in the seller’s best interest. If a sophisticated buyer is involved and ascertains that the seller’s attorney has limited M&A experience, that buyer will often walk away, fearing the deal will not close without the involvement of seasoned professionals. Knowing how to determine the selling price of your business is a skill few possess. Beechwood Proactively involves the right M&A experts to ensure that our clients have the appropriate guidance to make a closing possible.
Surprises should be avoided at all costs when it comes to selling. The financials of a deal should be reviewed or audited by a CPA firm to assure the buyer that all revenues and expenses are properly accounted for. Many deals are coming to market with a Quality of Earnings Report by an outside accounting firm to confirm the adjustments to EBITDA. Any issues that may have a negative impact on the business should be disclosed as early as possible in the process. Anything that the buyer finds in diligence that has not been disclosed will have a negative impact on the valuation and raise doubts in a buyer. This could lead to a revision in the purchase price and potentially become a deal killer.
If you’re looking to sell a business, Beechwood Capital Advisors have the insight, experience, and resources to help you do it; from valuation to closing contact us today to find out how we can help you succeed.