How to Avoid 7 Common Deal Killers

AdvantEdge Advisors - Merger & Acquisition Advisors

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Most business owners plan to leave their businesses within five years. Most of them will also fail to achieve this goal, and many won’t even be marginally ready for a sale when the five-year target arrives. Owner failure to identify and remedy deal killers lies at the heart of this problem.

These eight deal killers wreck a company’s sales potential when left undetected. But they can be fixed—if, and only if, an owner is willing to look at and address the problem. Here are the eight worst offenders, and how you can kill them.

  1.     Failing to reconcile your desired sale price with the market’s perception of value before putting your business on the market.
  2.     Doggedly focusing on top sale price, at the expense of all other goals.

These two deal killers share one thing in common: the incorrect assumption that a sale will be easier, and the price will be higher, than is realistic. Assuming things without research kills deals. The fact remains that owners often underestimate how much money they will need to make an exit. And because they’re emotionally invested in their businesses, they tend to greatly overestimate their value. This killer combination triggers an assortment of problems, with potential reverberations throughout the marketplace.

Get rid of these deal killers with ample pre-sale planning. Work with a tax expert to reduce taxes and fees, thereby getting you closer to your net proceed goals. Assemble and work with a team well before your exit date. This helps you avoid false starts that can lower your business’s value if you opt not to sell.

  1.     Neglecting to preserve the company’s most valuable asset.

Employees are a business’s most valuable asset. You must retain the after the sale for the business to succeed. Owners sometimes fail to consider how a sale might affect employees. They might also fail to realize that a new owner does not want to have to worry about hiring. Don’t allow employees to jump ship, or to try to negotiate for a cut of the sale price.

To slay this deal killer, you need to motivate your staff to stay. Consider a non-qualified       deferred compensation plan, non-solicitation agreements, and/or a stay bonus. This can keep good employees on board, and prevent those who do leave from harming the company.

  1.     Believing that negotiation is something you can do alone.
  2.     Being unwilling to hire and work with a strong sales team.

It’s true that you know your business best, but do you know the entire market? Most owners are reluctant to partner with the team they need. This undermines their negotiating power. The buyer will likely have a skilled team assembled. Lone owners can be overwhelmed by the demands of such a team, causing them to essentially throw away money. A skilled and experienced deal team can help you plan for the negotiation process, ensuring you get the best possible deal, and preventing your inexperience from becoming a liability—or a source of manipulation—during the deal-making process.

  1.     Not believing in the value of pre-sale planning and due diligence.

Due diligence in anticipation of a sale can be costly, and might feel like little more than an annoyance. But foregoing it may decimate the value of the business, and add extensive work to the sale process. Due diligence alerts you early to potential problems, offering you the time you need to correct them.

To avoid this deal killer, the solution is simple: get a skilled pre-sale team involved early, and do your due-diligence before the business goes on the market. A little effort on the front end can save you time and money as you move forward.

  1.     Seller’s Remorse.

Selling a company you’ve built is an emotional undertaking. Emotions can hinder your ability to think reasonably, causing cold feet and undermining even the best deals. Cold feet at the end of the process are common, but if you allow them to rule your decisions, you’ll lose money, productivity, and time.

Solve this deal killer by talking to people you trust. Honoring your emotions can prevent them   from harming your goals. Set clear post-exit goals, and ensure your sale plans address those.    Establish plans for the future. Ensure the business isn’t your sole source of fulfillment.

Deal killers are preventable with a bit of skill and a willingness to think strategically. Owners don’t typically have the experience necessarily to solve these deal killers on their own, so consider working with an expert team of planners and advisors. Doing so can grow the value of your business, protect your future, and offer support during the transfer process.

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