5 M&A Obstacles and How to Prevent Them
Working with a business broker increases your chances of securing the best price for your business and can help you leave unnecessary stress at the door.
In the world of mergers and acquisitions, some deals play out smoothly and efficiently while others tend to fall flat and suffer difficult consequences. It can be very easy for a deal to fall through if not prepared for accordingly and can leave room for heartache and disappointment after a long waste of time. Fortunately, if you are a business owner and you are thinking about selling your business, there are steps you can take to avoid these obstacles, and it starts with recognizing the issues you might run into along the way. The first step in selling your business is working with a professional intermediary who can provide you with a realistic and accurate valuation while guiding you through the process of finding the right buyer to take the reins. Working with a business broker increases your chances of securing the best price for your business and can help you leave unnecessary stress at the door. Below are 5 M&A obstacles and how to prevent them.
1. Unqualified Buyers
One of the main challenges associated with M&A transactions is wasting time with unqualified buyers. Delaying the process with buyers who do not have the experience needed to take over the business can exceed the length of time in waiting for the deal to close, and can ultimately diminish the success of the transaction. Verify that the intermediary you are working with is properly vetting potential buyers who have the means to acquire your business. Proper licensing and background experience is essential, as well as making sure the buyer has no past or current lawsuits. Working with a professional can decrease your chances of dealing with an inexperienced buyer in the beginning stages.
2. Mixed Feelings
As a business owner, it is only natural to have mixed feelings when selling your business. As the President of a business brokerage firm, I have seen a handful of deals fail because of sellers getting cold feet at the last moment, and it is certainly a devastating ending to a hopeful transaction. Ensuring that you are ready to part with your business is a crucial aspect of moving forward and finding the right successor. This decision could take time – typically a few years. Only you as a business owner can make the final decision. It is not the business brokers job to persuade you into following through with something you are not fully prepared for. If you feel pressured into selling your business, it might not be the ideal time for you to let go. Your time as an entrepreneur is valuable, and if you’re not ready to move forward in selling your business, taking the time to weigh out your options will benefit you in the long run.
3. Poor Books and Records
If there are discrepancies in the organization of the seller’s books and records, this can be a serious red flag to a potential buyer. Inaccurate bookkeeping can cause the buyer to back out of the deal because of uneasiness or suspicion. Stop running personal expenses through the business you own and remove all personal expenses for the current year. Your advisors are your best resource and can assist you in making sure that your financials are true and accurate. The best advice I can give is to make it a point to discuss your books and accounting with your CPA before you proceed to put your business on the market. It will save you from a concerning situation and could ultimately determine the outcome of the transaction. Learn more about how poor books and records can decrease the chances of selling your business.
4. Outside Advisors Taking Over the Deal
Advisors such as your CPA and attorney can assist you with the deal, but make sure to use an attorney either referred by the firm representing you or an attorney that has prior transaction and/or M&A experience. Working with an accountant or attorney that has no experience in dealing with buying or selling businesses may prolong the process and take control of the transaction. The last thing you want is your advisors taking over the entire deal and damage the trust and goodwill that you have established with the buyer.
5. Undisclosed Issues
Once a buyer discovers an issue associated with the business that has not been addressed prior to due diligence, they will likely feel conflicted about moving forward with the negotiation. A surprise could deter the buyer from trusting the seller and could ultimately cause the deal to fall through completely. Make sure to be honest and upfront at the beginning of the process, disclosing all information that might come into light during the due diligence process. Minimizing customer concentration issues prior to selling the business is crucial and will lead to higher credibility. Issues that come up during due diligence, non-disclosed information that the seller forgot to inform the buyer of initially, or lack of communication that leads to confusion are all main sources of unresolved surprises. Full disclosure can prevent these unsettled issues from happening and could salvage a deal that is already facing hardship. Read more about discovering unresolved issues during the due diligence process.
There are many potential obstacles that could decrease the chances of successfully selling your business. Working with an experienced professional can help you avoid these obstacles and assist you in closing the deal while securing the highest price possible.