Most owners say that they want to exit their businesses within the next five years. Most of those owners will fail to meet this goal; many won’t even be positioned to begin the sale process by the time their target exit dates pass. The reason for so many missed targets often lies with the owners’ failure to identify and address the eight biggest deal killers.
Deal killers are conditions that destroy a company’s salability if they are left undetected and unresolved until the sale process starts. Here are the top eight, and how to slay them:
1. The belief that you can sell your business today and satisfy your financial independence needs and wants.
2. The failure to reconcile your need for value with the market’s perspective of value prior to going to market.
3. An exclusive focus on top-line sale price.
These three deal killers stem from incorrect or misguided assumptions. Many owners vastly underestimate how much money they will need post-exit, while overestimating the value of their companies. This deal-killing combo causes myriad problems, including tainting the marketplace.
The best way to slay these three deal killers is to engage in pre-sale planning. Getting a sale-price estimate for your business, which many investment bankers/business brokers provide for free, is paramount. Working with a tax professional to minimize taxes and fees will get you closer to the net proceeds necessary for financial independence. Assembling and using a deal team long before your targeted exit date will prevent a false start that damages your company’s value should you decide not to sell.
4. Failure to preserve a company’s most valuable asset.
Retaining key employees post-sale is critical to a successful business sale. Most buyers view key employees as essential and may not be interested in acquiring a company if they leave. Owners sometimes forget how their exits will affect key employees, causing them to jump ship or, worse, blackmail an owner for a cut of the sale price to stay with the company after the owner leaves.
The best way to slay this deal killer is to motivate and “handcuff” key employees. Creating non-qualified deferred compensation plans, stay-bonus plans, and non-solicitation agreements are good ways to keep key employees on after you leave or, if they do leave, assure that they don’t harm the company.
5. Believing that you can negotiate alone.
6. Unwillingness to hire and use a strong deal team.
Most business owners don’t have the experience necessary to sell their businesses by themselves for the money they need. Buyers often assemble crack teams of advisors to negotiate the lowest possible price and best deal terms for their businesses. Lone-ranger sellers are often overwhelmed by these professionals, causing them to leave huge sums of money on the table.
The solution is to build a best-in-class deal team that will help you navigate the nuances of a business sale. The returns on your investment in the strongest possible deal team can be exponential.
7. Believing that pre-sale due diligence isn’t worth the time, effort or cost.
Pre-sale due diligence can be costly, but foregoing it can be devastatingly expensive. Buyers will have high expectations when paying a high price for your business, so any unrealized or unaddressed flaws in your company can damage its value to the buyer or, worse, kill the sale. Getting out in front of any problems that your company may have will eliminate the risk that the buyer finds a flaw in your business that you didn’t recognize.
The solution to this deal killer is to engage your deal team in pre-sale due diligence before you go to market. An ounce of prevention is worth a pound of cure.
8. Seller’s remorse.
Selling a company that you’ve built can be hard. Emotions can run hot, leading to cold feet. Getting cold feet, especially toward the end of the sale process, isn’t uncommon and can lead to lost money, production, and time.
There are a number of solutions to this deal killer, the most important of which is to talk. Talk to your advisors, family, and other owners about your post-exit goals, needs, and wants. Find things that you want to do after you exit before you exit. Make sure that the business isn’t your life before selling.
Each of these deal killers is preventable. You must discover and eliminate them before you take your company to market. Owners usually don’t have the time or experience to do this alone. We suggest working with planning-based advisors experienced in helping owners grow, protect and transfer business value.