Build before you Sell
February 28, 2022
In Their Shoes
February 28, 2022As a business owner, I’m sure you’ve read one or more great business books in your career, giving advice and guidance on how to be a great leader or how to have a 4-hour work week. All have their tidbits of genius and knowledge. When talking about selling your business and getting to the closing table, I think about Napoleon.
“A Goal is a Dream with a Deadline,” is the famed quote by Napoleon Hill from his timeless book “Think and Grow Rich.”
When selling a business, missed deadlines create a tsunami affect – the impact worsens the closer the water gets to shore causing mass havoc in its wake. I’ve seen more than one occasion when a buyer has backed away, because the seller couldn’t stick to a time frame and key deliverables. OR more often, we see deals that go through but because the seller is ill-equipped with the right data and therefore less confident, ends up settling for far less because now they feel backed into a corner.
Missing deadlines and delaying the process also invites the unknown. We’ve all talked about the impending next serious dip in the market – one that goes beyond an adjustment. A delay can make a huge difference in company valuations, cash availability, and buyer confidence.
Although each deal is different, all follow the same process.
1. Owner/CEO decides to sell and chooses a definitive exit date
2. Owner/CEO hires an M&A firm, meets with Attorney and Accountant
3. Collective team gathers data to create an accurate valuation of business
4. M&A firm begins the process of finding potential buyers
5. Owner/CEO with M&A firm’s guidance, cleans up their house to ensure the most attractive buyers are in the pipeline
6. M&A firm finds potential buyers, negotiations begin
7. Buyer/Seller marriage – letter of intent signed
8. Due Diligence continues, closing date chosen
9. Deal closes
When deadlines are missed:
If the buyer misses the deadlines the seller has the option to:
1. Give buyer an extension (not ideal) and close late. If the seller has a backup buyer – those conversations should start
2. Walk away and work with backup buyer
3. Walk away completely and start over
If the seller misses deadlines the buyers can get anxious and leery that the seller isn’t as business savvy as they had hoped. They too can offer extensions or walk away.
Having a reputation as a “deadline-optional” buyer or seller is not ideal. Word travels fast.
To avoid the glitches:
1. Create clear expectations between all parties on due diligence and deadlines. Who is responsible for what and when?
2. Constant communication with all parties – timely check-ins, nudges to ensure things are moving smoothly and yes, on time.
3. Hope for the best and prepare for the worst. This is applicable for both sides of the house – buyer and seller. There always needs to be plan B, C & D.
4. Be flexible but firm. Life happens, and there may be unforeseen circumstances such as natural disasters, market shifts and even illness. Be understanding and flexible. No need to cut off your nose to spite your face, but be realistic. What CAN you be flexible and understanding on and what things are non-negotiable?
5. Be realistic with the above. As a business owner – bring in the cabinet of experts. Get key members of your team on board while keeping things confidential if need be. Hire an M&A firm early in the process and work closely with your attorney and accountant.
In the end, listen to Napoleon. He didn’t name the novel “Think and Be Poor.”
