Deal Killers – Incredible Forecasts

deal-killers-no-1One of the most “interesting” conversations I have with business owners is around the subject of financial forecasts. I can’t recount the number of times I’ve been told “forecasts aren’t relevant in our industry” or “in our sector it’s impossible to forecast for more than six months ahead. Really??

How on earth these owners expect to sell their companies is quite beyond me! Why would they expect an acquirer to risk spending millions of pounds on a business with no quantifiable future earnings?

At the other end of the scale are forecasts that are frankly incredible. If you drew a graph the shape would be that of a hockey stick. Flat results that suddenly rocket up depicting blue skies all the way!

Now it’s true that acquirers do expect to see fairly aggressive financial growth but the projections have to be credible. If they’re not, they can turn a perfectly saleable business with many other attractive assets into an unsaleable business. In fact, it’s one of things a good broker will insist on, because they know that unrealistic projections can kill a deal.

Any buyer will want to gain a detailed understanding of what’s behind the financial projections; after all, past results can only ever be an indication of future performance.

Regardless of whether a company is for sale, it is absolutely imperative that business owners understand what drives their company’s financial performance and what assumptions have been made when calculating future results. That way they will know how those drivers can be adjusted to ensure that the projected results are achieved.

A company that cannot put together a credible financial forecast is highly unlikely to sell for a premium price, if at all.

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