Sunday, April 10, 2022

Common misconceptions about selling a business



[Editor's note: We have helped over 40 clients add value, prepare for a sales transaction, and execute successful transactions, ranging from $6MM to $350MM. Several business owners have asked us about this topic so we decided to publish this article again. - DPM]

 Common misconceptions about selling a business  

 It appears that we may be entering the next big surge in business transition activity fueled not only by the retirement needs of aging baby boomers, but also very successfukl growth for businesses over the last decade. The first baby boomers turned 75 years of age in 2020 and we are have entered the years with greatest numbers of boomers.

  If you are a business owner contemplating a sale somewhere in your future, consider these common misconceptions about selling your business.  

 ·     I know the buyer - they are in my industry.  Many business owners think they already know the prospective buyers - from their industry. However, in many cases where a sales process is conducted by an investment banker, an "outlier" (either a strategic or financial buyer) surfaces with an offer significantly higher than from those you may know. Many times these come from outside your industry.

 ·     The market will be better next year.  Procrastination can cost you. Sellers in 1999 or 2007 or 202 0 will tell you that they wished they had sold while the market was hot.

 ·     I don't want to sell until I have to (Dismal D's). You want to sell when your business is healthy and when you don't have to sell. Life can take cruel twists and turns. Business owners without a plan can find themselves subject to the "Dismal D's" - Death, Disability, Divorce, Dissenting Owners, Declining market, Debt overload, or just pure burnout. It is hard work to sell your business. You'll need plenty of energy and motivation to maintain performance during the sales process.

 ·     The investment banker or M and A firm will build value.  No they won't - that's not their job! A good investment banker can help you yield value, attract a broader market of potential buyers and get a deal closed, but they don't have the skills or background to build value. Some small M and A firms will offer services and advice in order to get your transactional business, but these are either young, inexperienced associates or people who have not really run a business. They are very good at selling your business, but what they don't know can hurt you. Beware of these firms that pitch themselves as one-stop shops.

 ·     My lawyer (or CPA) (or Wealth Manager) will help me find a buyer. Finding a buyer is very different than finding the best buyer, the right buyer. Investment bankers do this every day. Most professionals understand what they do well....and what they don't. Find the right tool for the job!

 ·     I met a guy in my CEO peer group /My investors know a banking firm. Selling your business may be your most important business decision. Get help in making an informed decision about selecting an investment banker or other professionals such as accountants, tax counsel, and transaction attorneys. Learn about possible (but undisclosed) conflicts of interest, differences between firms, level of expertise that will work on your company, etc. Have you checked with previous clients that were both successful and unsuccessful? Mead Consulting clients use a checklist of questions to help make the appropriate choice.

 ·     It only takes 6-12 months to exit a business. Nothing could be further from the truth. In order to realize the maximum value it may take you 1-2 years to prepare the business, 12 months to do the transaction, and then you may have to remain for up to 3 more years with the company after the sale. Rushing a company to market without proper preparation will cost you as buyers will discount values for companies without an adequate strategic growth plan, diverse customer base, strong management, or a clean review of due diligence issues.

 ·      Selling will only take some of my time. The biggest mistake business owners can make is to allow business performance to slip during a sales process. The primary reason for deals to either fall apart - or become heavily discounted - is because of deterioration of revenue and earnings. Business owners can dramatically underestimate the amount of time and energy it will take to both sell the business and maintain performance during the process.

The Mead Consulting Group helps business owners navigate through a successful sales process, including preparation, selection of the team (investment bankers, transaction attorneys, tax counsel, etc.), and the sale process itself. We focus on maximizing value and leverage the business owner's and management's time so that they can focus on maintaining business performance. Contact us for more information.   


Best regards,

Dave Mead         



"I can't change the direction of the wind, but I can adjust my sails to always reach my destination."  



The future has never been more uncertain, but your business can always be prepared with flexible approaches to planning and execution



How is your Execution in 2022 ? 

Is It Time to Make Adjustments for 2022? 



Several of our clients had successful sales of their companies in 2021  

 Prepare to Maximize the Value of your business 

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