Mistakes To Avoid…

Most entrepreneurs are currently facing a number of major challenges, such as labor shortages, irregular supply and rising production costs, to name a few. In this context of uncertainty, maintaining or increasing the value of one’s business is becoming increasingly difficult.

For entrepreneurs wishing to sell their business, here are four mistakes to avoid:

  • Adopting a “lifestyle” management style: many managers, as they approach retirement, decide to “ride the wave”. As a result, they slow down development and put less energy into the growth and progress of their company.
  • Concentrate decision-making at the executive level: in contrast to the “lifestyle” executive, the one who has not surrounded himself with an autonomous management team will not satisfy the criteria of a potential buyer.
  • Keeping obsolete equipment: there’s a lot of talk about productivity, automation (to counter labor shortages) and even robotization. A company working with old equipment, old methods or outdated management systems will be less valuable to a potential buyer.
  • Resisting change and lacking agility: the last few years have shown that companies need to be agile – modifying their products, addressing new markets, changing suppliers, finding new ways to serve their customers – these are all changes that today’s companies have to face.

We’re often asked what the magic formula is for selling a business fast.  To date, we haven’t found that magic recipe. Instead, we believe in an established and rigorous process that enables us to move a transaction forward. Our experience has shown us some common mistakes…

  1. Asking for too high a value without valid arguments to justify it.
  • Buyers use accounting criteria to value a company; sellers often want to introduce “emotional” values; a significant price differential can derail a transaction.
  • Not only will the buyer use professionals to validate the price, but the banks will also get involved – if the price is too high, they won’t go ahead.
  • When adjusting for profitability, a representative compensation for the owners must be considered, and the difference between salary and dividends can have a significant impact. Any other adjustment will be validated.
  1. Limit your pool of buyers.
  • Some sellers fear that the competition will know they are for sale. So, they limit the presentation to certain companies. Be aware that these are the ones who will normally offer the best price. You can’t have an individual with the required capital outlay, the perfect experience in our industry, and who’s just looking in your postal code to take over – and by the way – who wouldn’t be a competitor. Let’s just say it’s a rare mix!
  • We’ve had cases where a seller didn’t want to sell to his natural competitor – and all to protect his company’s jobs. Has it occurred to you that a buyer who is new to the business is no more likely to guarantee jobs? A current employee who has the skills of the trade, but no entrepreneurial skills, is no more a guarantee of success.
  • Limit “feeling” sales price balances. Some sellers want to vary the balance according to the buyer – a stock purchase involves risk, and a certain level of balance should normally be part of the equation, regardless of the buyer. Financing a buyer via a balance is another matter!
  1. Poorly managing the process
  • Take the transaction for granted at the signing of a letter of intent: think that buyers won’t find out what’s at stake. Serious buyers will want to rummage through every drawer! Don’t underestimate buyers’ level of preparation, 
  • Being ill-prepared for due diligence can give the wrong impression and greatly delay the transaction – the seller is trying to run his business as normal, producing a wealth of information. A serious buyer will carry out exhaustive due diligence. A serious seller should be able to provide answers and documents quickly and clearly.
  • It’s not over until it’s over… the letter of intent is just one step in the process; the real end is when the deal is closed and paid for.

Communication and coordination must be managed.

  • Don’t let any information leak out before the deal is closed, as this can upset a number of stakeholders. Communicating with the seller’s customers or employees without authorization is a major mistake.
  • It’s important to assess who holds the real power on the buyer’s side: is your contact the only one to make the decision? Should he refer to a committee, his accountant, his spouse?
  • The confidentiality agreement (NDA) remains in force until the end of the process!