Preparation: The Difference Between Successful and Failed Deals

AdvantEdge Advisors - Merger & Acquisition Advisors

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Owners often delay plans for a sale until the very time when the sale is least likely to be successful: when they need the money. Others see no need to prepare until they’re ready to sell.

Owners mistakenly believe that, as soon as they’re ready for a sale, buyers will be clamoring for a chance to buy. They see their businesses as inherently valuable—a perception skewed by years of hard work invested in the company.

These CEOs see finding a buying partner as a simple process of eliminating unqualified buyers. They’ll network, locate appropriate buyers, then pick the cream of the crop. Or so they think.

In reality, the sales process is a meandering process that begins well before negotiations. Moreover, there are usually some unexpected changes along the way, including thwarted expectations that demand changed plans.

Selling your business isn’t something you decide to do once. It’s a process that results from months, and possibly years, of work, relationship-building, planning, and adjusting. See the process as a funnel and you’ll better understand. At each stage, the funnel gets a little smaller and the number of potential buyers shrinks.

Each step will also probably take longer than you anticipate. You’ll lose partners as the funnel gets smaller. That’s a good thing, because nearing the end of the funnel means getting closer to closing—and to your ideal deal partner.

If this process is already sounding daunting, you’re not alone. Many business owners simply don’t have the time or expertise to manage the process. The best way to shorten the time line and minimize stress is to work with an investment banker or advisor who is experienced in your industry, who has experience with the outcome (such as raising capital or selling the business) you seek, or both.

A good advisor clarifies your goals at the beginning, then helps you find buyers who may be a good fit. Online platforms may also support the process by helping you form relationships that extend beyond the borders of your region or professional network.

Company performance matters, but so too do external factors like the market. Value drivers you may not see can also affect how widely you need to expand the top portion of your funnel.

Want to complete a transaction according to a desired time line? There’s one thing you must do: Begin early. There’s no such thing as too much planning for a transaction.

A successful sale requires you to strengthen relationships a year, and perhaps two or more years, before the transaction. Consider a goal of two or three new relationships per quarter. This allows you to be more selective about whom you work with, in addition to deepening relationships with potential future partners. You’ll also have more room for error if something goes wrong or you need more time.

This process of advance planning can mean that deal partners drop out before you even begin negotiating. It also makes the time line to a deal a lot more jagged. But it can ultimately shorten the process.

Strategic thinking about the funnel that feeds a deal ensures you have the relationships already in place that can ultimately support a deal. A business transaction is almost always stressful. Advanced preparation, however, removes a significant source of stress from the process, and can support a better deal and a shorter time line to achieving it.

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