So you’ve spent years building a business and have decided it’s time to sell up. It’s your opportunity to capitalise on your hard work; perhaps you are looking towards retirement, or maybe you feel it’s time to move on and build something new. Either way, selling isn’t an everyday event and mistakes can be costly.
So what could derail your business sale?
Not delivering on results
While a big part of due diligence will be about the past, the buyer will be buying for the future. You may need to provide forecasts early on in the sale process. Not delivering on forecasts can undermine the buyer’s confidence in the business. Even though the deal will put extra demands on your time, you’ll need to keep the business on track!
Unexpected problems in due diligence
Perhaps something from the past is identified and there are liabilities which haven’t been accounted for. Alternatively there could be something pointing to unexpected risks to future performance. Problems with the quality of information (or being unable to provide required information) can also undermine confidence.
Changes to the terms of the deal may address the issues; although this will probably be by a reduction in price or involve increased risk for you. Where the problems are severe or changes to terms can’t be agreed then the buyer may well pull out.
Unexpected delays in the process will increase the chances of the buyer getting cold feet.
As time passes, the greater the chances of something happening that persuades the buyer to pull out. It might be directly related your business, but could be something else, like a change in economic sentiment or a change in personnel at the buyer. Good things can also happen, but you’d have already agreed a price so upward renegotiation may be challenging.
While there will be occasional exceptions, it generally makes sense to get on with things as quickly as possible. It also avoids the need to update due diligence information!
How to keep things on track
- Ideally, the more you prepare in advance, the greater the chances that the sale won’t be derailed. While that’s the best approach, realistically many businesses do have other priorities until a sale is imminent.
- Many smaller businesses don’t routinely prepare forecasts, the sooner you start doing so the better. If, over time, you refine the way you arrive at the numbers, the more likely you won’t over-commit.
- Think about getting professional support:
- There may well be bumps along the way. Having someone experienced in deal negotiation and management on your side should help keep things on track.
- Hands on help should alleviate the pressures of due diligence by:
- Providing a fresh perspective on due diligence information before it’s given to the other side.
- There being someone onside on the same wavelength as the buyer’s advisers. An extra resource to prepare or review information and resolve queries.
- Speeding up the due diligence phase.
While the deal negotiation side is not my forte, I do provide hands on financial due diligence support; it’s not for every business sale situation but should be beneficial when high sale proceeds are expected and the accounting side is inexperienced, under resourced or underdeveloped. If that’s yours or a client’s business then it may be worth getting in touch!