No one wants to make mistakes, but we all do. Mistakes are often where we learn and where work gets done. Yes, some mistakes are million dollar ideas - potato chips, x-rays, post-it notes or fireworks.
But most mistakes don't make you money, they cost you money.
Here are three common and critical mistakes business owners make that can cost them millions:
1. Setting the wrong price. Many business owners adamantly believe their company is worth more than it is. Those businesses sit on the market, and don’t sell because the market won’t pay that price. Even worse, competitors might get wind of the potential sale and try to poach your customers/employees while your company is vulnerable and exposed on the market for an extended period.
On the other end of the spectrum, owners overlook key value drivers and underestimate the correct selling price. They can leave millions on the table by not understanding the market and what someone will pay. We recently had a conversation with a business owner who thought his business would sell for $3MM and when we discussed his business further, the value of his company was around $5-6MM. That's a lot of money to leave on the table.
Interview several M&A advisors who understand your industry experience and make sure they have a solid track record of success. You don’t want someone who says they can get you top dollar, you want someone who proves they’ve done it before and can do it for you. You want an advisor who underpromises and overdelivers.
2. Selling before you are ready. You have to be mentally and emotionally ready to handle a transaction. If you think you’re going to be ready to sell in the next 2-3 years, start planning now for your exit. Make sure you have a strong team in place and you aren’t the sole rainmaker for the business. You need to show that the business can support itself without you there. Talk to wealth planners and tax advisors to understand what your financial needs are without the business and confirm what you’ll need to live a comfortable lifestyle. Do research to understand the transaction process and options. You can do more than just sell your business and retire. There are recaps, MBOs and other scenarios that help you do more than cash out and go.
3. Flying solo. As a successful business owner, it can be tempting to sell your business on your own. After all, you built it, you understand it, and you have industry connections. So, why can this route be a mistake?
The transaction process is extremely complex and if you haven’t done it before, you’d be surprised at the amount of work required. On any given transaction, there is upfront financial analysis and reporting, detailed marketing packages to prepare, hundreds of buyers to qualify and dozens of initial calls… and this is all in the first month – before you even get face to face with a buyer. It’s a very busy and time consuming process and you can’t take your eye off of your business because if you have a blip in performance, buyers will walk.
Then, once it’s time to review offers, you can get several offers at the same price but based on terms and structure they’re actually very different. It’s comparing apples and oranges. Your M&A advisor, with the help of your legal and accounting team, will help you comprehend the nuances of the offers and identify the structure that fits the transaction you want.
Selling your business is a one-time event. Understand the process that takes you from “I’m ready” to “I’m closed” and have a team in place that allows you to keep your eye on your business and offers steady hand to guide you to the finish with the right buyer and offer. Don’t let a foreseeable mistake cost you millions.