Pitfalls to Avoid When Selling
6. Running Off With the
When it comes to ownership transfer, the highest price bid may actually
be one of the worst deals for the seller. A number of critical issues could
override a decisive price difference among competing bids:
* Financial wherewithal of the buyer to close the deal
* Contingent liabilities that the seller must accept for some period of
time after the sale, such as those related to:
- Environmental problems,
* Contingencies or "outs" in the buyer's offer, such as due diligence,
environmental audits, financing, board or parental approval
- Pending litigation, and
- Salability of inventory.
* Employment agreements for the seller and key employees, including length
and level of compensation, and
* Form and timing of consideration to be paid if other than cash, such a
s note, stock and earn-out.
7. Information Leaks
More than likely, you're not going to be able to keep the fact that you
are selling the business a secret. It is best to avoid conflicts and protect
your credit ability by being direct with employees and key customers about
the news, on your own terms.
8. Favoring The Fast Track
Letting one attractive buyer get on the "fast track", far ahead
of the buyer pack, will cause you to lose your greatest weapon: other bidders.
The key is to build competition, to force buyers along your schedule and
not to theirs. A good advisor will know when the time is right to sit down
and hammer out a deal with the buyer.
9. Sparing The Bad News
No one likes to be the bearer of bad news- particularly when the news contains
potentially damaging information about a company that is for sale, or reports
about the company' key players. Unfortunately, the later bad news becomes
public, the greater its threat to derailing the entire deal. By addressing
the bad news up front, the seller can establish a strong case and avoid
potentially damaging innuendo. Negative reports can certainly impact overall
valuation, but cover-ups or omissions, which will undoubtly be discovered
during buyer due diligence, could easily result in a broken deal that no
price adjustment can repair.
10. Rushing To Market
If you are looking to maximize your company's value, overcome the disruptive
effects of a sale, and cash-in when it's all over, don't expect it to happen
during an overnight event. High expectations will only disappoint you. Proper
positioning takes time. Critical to the successful sale of the business
is the development of solid, experienced middle management, particularly
if the seller will no longer be involved and running the company.
In addition, strong financial reporting systems and historical statements
(preferably audited) are essential. They must support the financial data
presented to potential buyers, and ensure that all the required documentation
can actually be generated.
Presenting several business plans or prior years and for future years also
serves to illustrate the company's value by underscoring its growth potential.
As in tax planning, it is much easier to derive the maximum benefit from
selling your company if you prepare for it well in advance.