Andrew Weaver CEO, LawyerFair The Legal Procurement & Comparison Service – We help you find great M&A Lawyers
7 Untold Reasons You Might Not be Able to Sell Your Profitable Business You’ve got an established and profitable business but have decided (or been forced to decide) to sell. Well, don’t book that celebratory Caribbean cruise just yet. Business owners often misjudge the challenges and obstacles between wanting to sell and achieving exit indeed, many fail to understand the reasons why they might struggle to sell the business at all.
Here are 7 reasons you might not be able to sell your profitable business; 1. Preparation & Timing
Don’t go to market in a rush or without a thorough preparation process. At the very least, poor preparation will impact on the sale price and extend the amount of time needed to sell, at worst it may blow your chances of selling the profitable business at all.
2. Inexperienced / Incompetent Advisors
Inexperienced or incompetent advisors will cost you dearly because many a good deal has disintegrated at the hands of poor advisors – accountants, solicitors, brokers. You get one chance of selling a profitable business, make sure the people advising have genuine deal experience, ideally in your sector. Do some thorough DD on your advisors – it could make all the difference.
3. Making Assumptions
Deal complacency can arise through making various assumptions during the process; •
My profitable business will sell
•
My advisor/broker can do all the work
•
It’s just a matter of time – I can cruise
Not only will false assumptions affect your negotiating position and ability to see the good deals for the bad, it may lead to complacency with the critical business of running the profitable business. Don’t lose sight that the deal process can take anything 6-24 months and in the meantime, buyers are watching your performance. Keep focused and assume nothing.
4. Price Expectations
Vendor price expectations are a key factor to businesses not selling quickly, and not selling at all. Often the expectations are based on conjecture and golf club anecdote. Worse, they’re based on the misjudged and occasionally pernicious pre-sale valuations ‘sold’ by agents and people touting for the sale mandate. Pre-sale valuations are essentially pointless. The market dictates sale price and a skilled advisor will create competitive tension between strategic buyers that drives market appetite. Don’t dig in for a price based on paper valuations. Find the best buyers, drive the best price for your profitable business.
5. Time Wasters
Another reason to get an experienced and skilled advisor is their ability – through experience and market intelligence – to find and weed out the time wasters. As a corporate deals broker for 10 years, my instinct about who was genuine and who was a time waster became sharper with every deal. It’s an emotional and time consuming process, you need to rapidly weed out the BS and focus on the genuine. If not, deals drag on, value disintegrates and momentum is lost.
6. Failure to empathize with Buyers risk assessment
If it’s a lifestyle business and/or too much centered around the departing owner, then the risk profile is very different from that of a sustainable/saleable business where the goodwill (and value) is in the business and not the person. A regular and lazy assumption of buyers is … “hey, my business is profitable and I can transfer everything I know to a new owner/manager”. The buyer may not see or evaluate it that way and please don’t take a multiple figure and simply apply it to your bottom line or worse, apply it to the mystical and creative ‘adjusted net profit’ conjured up by your advisors. Understanding and empathizing with buyers genuine risk calculations will make your chances of achieving a deal more likely.
7. Thinking Heads is the Deal
You’ve marketed the profitable business, found a willing buyer, agreed a deal and formulated heads of terms. Don’t fall into the trap of thinking the deal is done (see assumptions above). Now the process moves to due diligence and everything is still very much to play for. This is where good preparation and experienced advisors will deliver their value, and your value. A well prepared and managed process will make the due diligence process easier but even the best advisors might have failed to spot an issue that concerns the buyer. This can lead to fractious last minute negotiations and the risk of price chip or worse – which is where deal savvy advisors make all the difference. In corporate deals, it’s definitely not over until the fat lady sings on completion day. Then it’s time to book the Caribbean cruise.