Common Misconceptions About Selling a Business

By David Mead

Reprinted with permission from Issues for Growth

It appears that we may be entering the next big surge in business transition activity fueled by the retirement needs of aging baby boomers. The first baby boomers turned 67 years of age in 2012 and we are beginning to enter the years having greatest numbers of boomers. We estimated that in 2012, based on slow activity in 2008-2011, there were between 1.2 -1.5 million boomers (with businesses between $2M and $80M in revenue) who would need to sell to provide liquidity for retirement.

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 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&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&A firms will offer services and advice in order to get your transactional business, but these are either very 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.
  • 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 for 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 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, 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.

 

(originally published in the May 2013 eNewsletter) 

 

©2013 The Mead Consulting Group, Inc. All rights reserved.

David Mead is President/CEO of The Mead Consulting Group. The 40-consultant firm www.MeadConsultingGroup.com, based in Denver, specializes in working with the CEOs and owners of small and mid-size companies to help them create value and leverage business strengths to reach the next level of success: growth, improving cash flow, maximizing value for exit. Contact Dave at (303) 660-8135.