Deal Killer No.3 – Loss of Credibility

deal-killers-no-3Buying a business carries a high degree of risk and an acquirer will always offset risk by reducing price. Having had an offer accepted a buyer will be closely monitoring every element of the proposed deal as it progresses to ensure that no unidentified risk presents itself as the transaction progresses.

The relationship between buyer and seller is, at this stage, crucial. A buyer needs to be certain that the seller is committed to seeing the deal through. Any loss of credibility can seriously damage, or even kill a deal. Having a good relationship with your buyer will help you to overcome any issues that arise, but there are some that must be avoided at all costs.

Missing your forecast

This is a real red flag to a buyer. In a previous article I wrote about the importance of having realistic, achievable forecasts. Failing to meet your forecast results does immeasurable harm to the value of your business. If it doesn’t kill the deal totally it will certainly reduce the amount the buyer is prepared to pay; after all the buyer has made an offer based (partly) on future earnings not what you’ve achieved in the past.

It is very easy to take your eye off the ball once you’ve accepted an offer. The fact is that this is just the start of the negotiation process and it is, therefore, critical that you don’t under-estimate the importance of meeting your forecasts.

Presenting a perfect company

Many business owners defer the decision to sell in the belief that the perfect company is what a buyer will want to pay more for. Unfortunately, this is not the case at all.

If you think about the motives behind an acquisition, and the primary motive is ROI (Return on Investment), unless there’s a really strong synergistic fit that will deliver a good ROI, a business that is only going to grow in line with the market is not an exciting proposition for a buyer; there has to be potential for growth above what the market is likely to deliver and your job, as the seller, is to identify and quantify that potential.

Being unresponsive

This may seem rather trivial, but failing to respond to requests for further information, being late for meetings or re-arranging meetings at the last minute indicate a lack of commitment on your part. It sends a message to the buyer that you have more important things to attend to than selling your business and will damage your relationship with the buyer. You may also be too busy to notice that your buyer is no longer responding to you and has found a better opportunity elsewhere.

Disagreement within the team

If more than one shareholder is attending negotiation meetings, it’s essential that you are all “singing off the same hymn sheet”. Your credibility will be compromised by other shareholders giving different or even conflicting explanations about key issues, setting alarm bells ringing in the buyer’s mind. Again, this goes back to risk; a lack of consistency reflects poorly on your company and its management, which leads to a lack of trust in other information you’ve provided.

Inexperience

Business owners are always experienced, multi-skilled people but few have sold a business. Experience and credibility often go hand in hand so, whilst it is perfectly possible to sell a business without a specialist adviser, inexperience can result in deal failure and that doesn’t always come from the buyer. Selling a business is a rollercoaster of a ride and an inexperienced seller will be facing a highly experienced acquisition team who do deals for a living. That’s a daunting process for most people!

If you’re planning to go ahead on your own make sure you get as much information as you can way before you put your business on the market. Go to seminars, read books, talk to people who have bought and sold businesses. Get to understand the sale process and then look at your business from a buyer’s perspective.

If you’re planning to sell a business, come along to an Evolution CBS Masterclass. It will help you to decide the best way forward for you and your business.

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