The great benefit of being in the middle-market M&A business for so long is that we have tabulated and calculated the common issues that we see business owners encounter all too often when selling their businesses. These mistakes are so common that we thought it would be a good idea to document them so that if you are eventually trying to find a buyer for your business, you will avoid these mistakes (if you can).
There is an old axiom attributed to Lewis Carroll that goes something like this:
“If you don’t know where you are going, any road will lead you there.”
The saying could be applied to selling a business. If you have no idea what your company is worth, any offer will suffice. Too often we meet entrepreneurs who admit that even though they want to sell their companies, they have no idea what a buyer will pay. On top of that, they have no idea how much they need to net in order to move on to the next phase in their lives.
Time and space do not allow me to delve deeply into this issue but simply put, if you have no idea what your company is worth in today’s market, how in the world will you know which offer to take? Hire a professional firm and allow them to value your company BEFORE you enter the market!
It continues to amaze us how often we encounter business owners who are trying to sell their companies with inadequate documentation. You only get one chance to grab and hold a buyer’s attention. If your documentation is spotty or, worse yet, full of errors, chances are good you will lose every buyer that approaches you.
At a minimum you will need to prepare three key documents:
An Offering Memorandum is quite simply the written version of the evaluation process we discussed under Mistake No. 1. However, it is more than simply your financials (although clean financials are vital). A complete OM should include the following:
One thing to leave out of the OM is price. Never mention price in any of your documents. Let the buyer tell you what he or she will pay.
Secondly, a Profile Letter is a one- to two-page summary of your OM. Your profile letter is what you will send to prospective buyers – so use it to capture their attention and have them focus on what you want to convey about your company.
You’ll want to include your historic and projected top and bottom line recast financials. You will also want to have a paragraph or two describing in general what the company does. Confidentiality is key here. Do not mention your company name or your location. You want to keep this general enough to protect yourself but specific enough to get a buyer’s attention. This is a challenge to do effectively.
Most importantly, once potential buyers have received your profile letter and have contacted you with interest, you need them to sign an airtight Confidentiality Agreement. Be very careful here and make sure that your CA is written by an M&A attorney so that you and your firm are protected.
At this point you might be saying, “Wait a minute. Anybody willing to buy my company would be the right buyer.” Nothing could be further from the truth. This is what we frequently observe:
After years and years of successful deal making, the best way to approach the buyer search phase is to cast a wide net. Most sellers believe that a local or regional competitor is the most logical buyer for their company. In some cases, this may end up being the optimal buyer. But if you assume that at the outset, you remove a larger group of potential buyers from the equation. You also almost eliminate what we call the “limited auction.” This is where you have multiple buyers interested in your company and you essentially get them all bidding against one another, which only does one thing: increase your company’s valuation!
Bottom line: If you approach the marketing of your company with the assumption that you already know exactly who the buyer is, you could end up selling to the wrong buyer. Starting your buyer search with only one buyer reminds me of an old M&A axiom: One buyer is no buyer.
When you sit down to negotiate your deal with a buyer, remember one thing: Professional buyers buy lots of companies every year. They know now to negotiate the best deal for the organizations they work for. They are not going to look out for you and your interests. Don’t expect them to.
Often, sellers become fixated solely on the purchase price while neglecting the importance of overall deal structure. Properly structuring a transaction is just as important as negotiating the valuation. Expertise in structuring the terms and conditions of a transaction is critical to securing and preserving maximum value.
A couple of tips to use when negotiating with buyers:
It is vital that you structure the deal so that it benefits YOU, not the buyer. In order to do that you need to be able to answer two questions: How much money do you need to have post-sale for the next chapter in your life and how long you want to stay with the new entity that the buyers will be creating? These two factors will determine the optimal deal structure for you.
Quite often, business owners tell us, “I will sell when the time is right.” When asked when they will know the right time, they usually respond with, “I will just know.”
Generational Equity believes that business owners should take a more analytical approach to the question of timing. You really have two options:
The first option really isn’t viable. Unfortunately, though, many business owners are following this scenario. Most of the time entrepreneurs are simply too busy running their companies to set aside the time to plan for their eventual exit. Although understandable, this is the worst of all possible mistakes. Eventually death, divorce, disability, disinterest or a myriad of other circumstances will force you to sell—and usually at a substantial discount to the market value. Do you really want to pursue this option?
The second alternative is the one we recommend. If you prepare your company to be “buyer ready” and plan your exit so that you optimize your valuation, you will sell when the time is right.
Note: The right time to sell is when the market tells you it is. Of course privately held companies are sold all the time under all sorts of economic conditions. The reality, though, is that if you sell when the market is prime, your valuation will most likely be higher and you will retain more cash at closing. When is the right time to sell? Simple answer: When buyers are active, as they are right now.
As you may have heard, 2015 was a record M&A year, 2016 is expected to be a repeat; beyond that with an election coming, all bets are off. So you most likely have a nice window of time still open to find a buyer or investor for your business.
Those are the five most popular mistakes to avoid. Of course there are more than five, but these are most common. If you would like to learn more about how to avoid these and would like to find out about other common issues that impact business transitions, please contact us. Generational Equity is a leader in M&A educational services, holding dozens of exit planning conferences around the nation and Canada on a monthly basis. If you own a business, make an investment of a few hours of your time to attend. Avoiding these mistakes (and others) could be vital to your economic wellbeing.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2021 Generational Equity, LLC. All Rights Reserved.
We were represented by Michael Goss with Generational. The due diligence was grueling and exhausting, but Michael propped us up and kept us motivated throughout the process. Debi and I continued to ask each other how we could possibly make it through this process without the assistance of Michael. Michael's professionalism and knowledge is absolutely amazing, and we are so blessed to have had him by our side as we made our future dreams come true.Bob and Debi Lee, Owners of BL Technology, Inc and BL Tl Services, LLC
I wanted to take this opportunity to thank you for all that you have done for us. Not only did you take care of all the aspects of the sale but took extra care to make sure we knew what it looked like every step of the way. I will definitely recommend your company to anyone that is in a position to or looking to exit their business.Shane and Johanna Kline, Owners of Vision Upfitters
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!Eric Erlandson, Owner, Action Fastenings, Inc.
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
Through the sale process, Generational brought in several interested buyers and we closed in about 6 months. I am so glad I accepted that invitation to the conference and could not be happier with the whole process. The team at Generational coupled with their knowledge and guidance was so valuable that in the end, I know I could never have done this on my own!JoAnn Ellis, Owner of Fondren 5 Star Kennels
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
Thanks to you, the entire GE team and especially Michael Goss for driving a great valuation, coaching me and driving the process across the finish line. Please let me know if there is anything I can do to support GE going forward. P.S. Given my experience with GE I felt comfortable enough to sign up with Generation Wealth Advisors!Tom Currier, Former President & CEO, Rackmount Solutions
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
After attending a conference with GE, I decided that the value they bring would be worth the expense and as soon as I started working with them, I realized that was the right decision. When we started to get LOIs, Fred Zweifel took the lead on the communication and supported negotiations throughout the process, which got tricky as we moved forward. I learned that it can be common for companies to make a great offer then work to erode that price with their discoveries, but Fred and the GE team kept that from happening.Caroline Connelly, CEO, OptoTest
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.Bryan D. Horn, Owner, Over Under Clothing
The most important contribution I think Ahmad made was with his personality and work ethic. He is sincere, efficient, and very hard working. He was available to me at all times, whether it was for specific detail of the negotiation or just to talk through the bigger picture. He listened, advised, and recommended, but never forced his idea or opinions. In the time we worked together, he became a valued colleague and also a friend.Salvo Stoch, Founder and CEO of Sleeping Partners
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
The professionals at Generational Equity then helped develop a roadmap for enhancing the value of the firm and an evaluation report. This was completed by June 14, 2021. We then developed the Confidential Information Memorandum and put Taylor Studios, Inc. on the market by July.Betty L. Brennan, President, Taylor Studios
Generational Equity’s professional staff helped me every step of the way. Their network and professionals are the only reason I sold my company this quickly. For me this is a once in a lifetime sale and I was unfamiliar with the process. I was able to lean on them with questions and concerns.
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
I decided to attend the conference and hopefully receive some guidance on how to structure an exit plan of my business. Upon arriving at the conference, I was so impressed with the presentation given by Generational Equity that I set a future appointment that week to discuss the possibility of selling my business with their Senior Managing Director David Robinson.JoAnn Ellis, Owner of Fondren 5 Star Kennels
We had the pleasure of working with Mr. Ahmad Behjati Managing Director, M&A, for Generational Equity during our acquisition of Papa's Dodge in late 2021. Generational Equity and Mr. Behjati represented and marketed Papa’s Dodge. As our primary contact, Mr. Behjati was professional in every facet of this acquisition process, conveying valuable advice most times and assisting us in every step of the process.Rick Greene of Dobbs Equity Partners LLC
it all started with a conference.
start your story today,
or speak directly with one of our senior advisors +1-972-232-1121
These previews only scratch the surface of the high-level business knowledge that can be gained from our seasoned M&A professionals.Watch our videos
You have now successfully requested our latest Generational Legacy M&A news download.Download now
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
Generational Equity, LLC’s affiliates are all part of one corporate family, they work with one another and may work together to provide services to you. The sharing of your information among affiliates enables Generational Equity to serve you more efficiently and makes it more convenient for you to do business with Generational Group. Generational Equity is permitted by law to share information with its affiliates. All of our affiliates follow similar privacy policies.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Group.
Honored to win 4-time winner of Investment Banking Firm of the Year.
Over 50 awards and counting.
Sign up to receive regular email updates, industry-leading insights and details on complimentary M&A executive conferences in your area from our award-winning team
Success, you have been added to our list.