We often get this question in our Growth and Exit planning conferences: Why do I need to hire an M&A advisor?
The answer is you don’t!
Hundreds of businesses are sold every year by business owners without the advice of professionals. But, as we have seen time and time again, most of these entrepreneurs sacrifice a significant return on their investment because they make two huge mistakes:
Each of these can be disastrous on its own, but most folks make both mistakes. This is not a big deal if you are in a fire sale and must dispose of your assets quickly due to health issues, divorce, partner complications, etc. But these are not recommended motivations if you want the highest ROI possible. So, let’s look at both so you can avoid making them.
Financial Accuracy or NOT?
Sadly, most business owners don’t realize that their historical financials do not reflect the true profitability of the company. I am not impugning or disparaging your CPA. In reality, if they have done their job correctly over the years, they have saved you a ton in taxes, and done so legally.
But, when you start to ponder an exit, you must realize that all those savings you have enjoyed need to be added back in. Trust me, savvy buyers will take your historic financials and will “recast” them without you knowing it. They will then offer you an amount for your company based on your non-recast financials which, in most cases, will radically undervalue your business.
Please don’t make this first mistake. If you don’t hire an M&A advisor, then have a trained CPA who has done M&A work recast your historic income statements and balance sheets (at least 3 years back). You will most likely be shocked by what you see!
Buyers Are NOT All Equal!
When we have our initial meetings with clients, we always ask, “Who do you think would be the optimal buyer for your company?” The answer is invariably the same and usually wrong:
My competitor down the street!
And the follow-up is always this: Every year at our annual industry trade show, they hand me their business card with an amount written on the back. Then with a wink they say, “Here you go pal, all cash,” (with another wink). Oddly those amounts on the back have gotten smaller and smaller over the years…
If you take nothing more from this insight, then make sure you remember this: Do not limit your buyer list to your competitors. Now ultimately, your buyer may be a competitor. But if you don’t use a limited auction process with the support and guidance of a skilled M&A firm, you most likely will not get top dollar for your business.
The business genius Peter Drucker is reported to have famously once said, “The buyer rarely buys what the seller thinks he/she is selling.”
That thought is so profound, you really need to chew on it for a bit. Before your head hits the pillow tonight, ask yourself, “Why would a buyer want my business? What intangible assets does it have that would attract premium buyers?”
Let your subconscious mull that over for a few hours. When you wake up you should be surprised to learn that your business is worth far more to specific, active, buyers than simply one competitor (or Larry from your country club who has bought and sold “hundreds of businesses like yours”).
This is a key reason you need a professional M&A firm like Generational in your corner. Our deal teams are extremely skilled in creating a buyer list that will attract the most interest from the most qualified pool of buyers. Here is some proof of our skill in doing so:
In closing, please don’t make the two mistakes we have discussed. Don’t save money and sacrifice it on the altar of lost rewards. Be as savvy as a buyer and aggressively pursue the accurate valuation of your company AND a list of the best buyers for it. Your financial legacy depends on it.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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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
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
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
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
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
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
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
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
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
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
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.
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.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
Dear Chris and Andre, I just wanted to say thanks for all your help. Even though this process was not an easy one, it was comforting to know that I had a capable team standing beside me. You made me feel like we were almost your only client or at least the most important one. Thanks again, and I will recommend your service in the future.Shenille Engelhart, Owner – CLS Technology
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
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
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
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
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
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
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.
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