Common deal breakers
Selling a business is a long process that can take between six and 12 months. Even owners who have entered into an agreement to sell may still face a number of barriers before the process is complete.
You should be aware of some of the potential pitfalls if you're considering selling your business or have begun the sales process. Here are five potential deal breakers:
1. Unrealistic value expectations
Many owners have lofty expectations when it comes to the value of their business. Your assumptions about how much it's worth are likely incorrect because of the emotional attachment you have to the business or using public company metrics for a private company when they're not comparable. Your expectations should be realistic and be based upon your advisor's valuation of the business.
2. Working capital
This is one of the most commonly misunderstood metrics in M&A transactions. It's important that the level of working capital is adequate enough for the buyer to keep the business running after the deal closes. You should be aware of the components of working capital, your company's working capital requirements and have the financial information to support the calculation.
3. Poor business performance
During the sales process, the performance of the business may be affected by unexpected costs or missed sales targets. These may have been magnified by the COVID-19 pandemic. Any foreseeable issues must be shared with potential buyers. You should provide accurate and realistic forecasts, which include how the business may be impacted by any external factors.
4. Shareholder misalignment
A minority partner or shareholder may be misaligned with the majority owner. This can lead to potential lawsuits and a disruption in the deal process. You should ensure there's a written shareholder agreement and alignment with minority stakeholders.
The longer it takes to get a deal done, the greater the chance something could go wrong. You may lose key employees, customers, or suppliers. If there's another economic shutdown or a credit crunch, it will be harder to sell at the price you originally wanted. It's best to plan ahead and prepare for any potential setbacks before you sell.
How we can help
Our Transaction Advisory Services and Tax teams support owners when selling their business. We provide strategic advice before, during, and after the transaction process. Think of us as a one-stop shop. Contact us to find out how we can help.