The old saying, “There is no replacement for experience,” is a truism that has stood the test of time. When it comes to businesses, and selling them, inexperience can dismantle a deal.
Consider the following scenario: A business owner nearing retirement owns a multi-location retail operation that is generating several million dollars in annual sales. He interviews a well-respected and experienced intermediary and is impressed. However, the business owner’s niece has recently received her MBA and has told her uncle that she can handle the sale of his business and in the process, save him a bundle. It seems like a great opportunity, but as it turns out, the niece’s (and seller’s) inexperience gives this business owner less than optimal results.
Let’s look at a few problems that arise with our nameless, but successful, business owner and his well-meaning and smart, but inexperienced, niece.
Error #1: No Confidentiality Agreements
The business owner and his niece do not use confidentiality agreements with prospective buyers. As a result, competitors, suppliers, employees, and customers all learn the business is available for sale. Of course, learning the business is for sale could cause a range of problems, as both employees and suppliers get nervous about what the sale could mean. Ultimately, this could undermine the sale of the business.
The inexperienced MBA was supposed to prepare an offering memorandum. In the process, she compiled some financials that had not been audited. While this seemed like a small mistake, the financials failed to include several hundred thousand dollars the owner took. He simply forgot to mention this piece of information to his niece, and this mishap dramatically impacted the numbers. Additionally, this lack of information would likely result in lower offers as well as lower bids, or even decrease overall prospective buyer interest.
Error #3: Failing to Include the CFO
A third key mistake in this unfortunate story was a failure to bring in the CFO. The niece felt she could handle the financial details, but in the end her assumption was incorrect. The owner and the niece failed to realize prospective buyers would want to meet with their CFO, and that he would be involved in the due diligence process. Not bringing the CFO on board early in the process was a blunder, caused by inexperience, that greatly complicated the process.
Selling a business, any business, is far too important for an amateur. An experienced merger and acquisition advisor with a great track record can provide guidance gleaned from a career spent doing what a seller may only do once. When it comes time to sell your business, remember the adage: There is no replacement for experience.
Copyright: Business Brokerage Press, Inc.
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