4 Wrong Ways to Kick-Off a Business Sale
Many times, a client comes to TKO Miller and he or she has already started conversations with a prospective buyer. In many of those cases, communication has broken down or things are not going the way the business owner thinks they should, and they bring us into the loop. Unfortunately, it can be very difficult to un-do a mismanaged sale kick-off. Here are a few things we see that are sure to get things off on the wrong foot.
1. Reaching Out to Potential Buyers One at a Time
This is the number one mistake that business owners make. They decide to start a conversation with one potential buyer. Talking to buyers is definitely part of the process, but it is not the beginning of the process. If you think you want to sell your business, engage an investment banker who will put together information and will share it with more than one buyer. The very fact that there is more than one buyer will create competition and keep all parties at the table honest and putting their best foot forward. The difference between running a real process with multiple buyers and a conversation with one interested party cannot be underestimated. It can mean the difference of millions of dollars to the business owner, as well as completely different post-transaction terms and conditions.
2. Sending Out Your Financials and Your Website Address
Sending over your financials and letting someone figure out your business by looking at your website is not due diligence. A buyer may suggest that this is all he or she needs to get started, but don’t fall for this trap. When someone has incomplete information and then gives you an indication of value for your business, that value is not something you should give any weight. This value is usually a way to encourage a business owner to stop talking to other parties. When an owner stops talking to other parties, competition is eliminated and the advantage in all future negotiations will fall to the buyer.
Even if you are talking with more than one potential buyer, it is imperative that they both receive the same information. For instance, if you get a preliminary value from a buyer that has reviewed your financials and to whom you have given a customer list, you cannot compare that with an indication received by someone who has reviewed your financials and had a quick conversation with your CFO. These two groups have different information and for you to stop everything and go with one group exclusively might mean that you have picked the wrong party!
Materials for a business sale are very carefully constructed to eliminate one-time events and make sure that the business is portrayed in the best possible light. Your investment banker makes sure that everyone gets the same information and he or she will also track what potential buyers spend their time analyzing. This way, when you receive preliminary indications, you have the ability to compare apples to apples.
3. Try to do it Yourself
Because the sale of your business is such an important event, it really should not be taken on as a “side job” or as a second thought. There is no easy way to engage a buyer that will yield the results you want. It is best to assemble a team of professionals to help you with this endeavor the minute you find yourself contemplating a sale. Even if you change your mind, you will avoid the pitfalls of casually sending over your information and getting less than attractive results.
In addition to the diligence part of selling a business, there are hundreds of decisions that will need to be made as you move towards a completed transaction. Because a deal team has done many transactions, they are in a much better place to counsel a business owner on what normally happens in a transaction and what the risks and rewards of certain proposals may be. If you attempt to complete a business sale yourself, you generally have no way of knowing what the “market” for certain terms and conditions is at that time.
4. Thinking You’re Done When You Engage an Investment Banker
Many, many business owners start the sale the correct way and hire a professional to prepare the information and to negotiate on their behalf. Sometimes, after an investment banker is hired, a business owner feels like the hard part is over. This is not the case. The business must continue to perform throughout the sale process. The worst possible way to kick off a business sale is to prepare information, send it to buyers, and then have a bad month or lose a key customer. As a business owner, the most important job you have after you engage an investment banker is to make sure that the business is running at peak performance. Nothing boosts your competitive edge more than a month that beats projections or the addition of a new customer. Correspondingly, nothing will stall a business sale process faster than a down month or the loss of a customer. Once you engage your team to sell the business, it is imperative that the business owner focuses on making the business execute at its highest level. You are at the beginning of the process once you’ve hired your team, not the end.
Deciding to sell your business is a big step. Let’s work together to get things started on the right foot.