The typical business owner sells one business in his or her lifetime. On the contrary, corporate strategic buyers often acquire multiple businesses every year, and financial buyers can be even more active. Unfortunately, inexperienced sellers make mistakes that buyers can capitalize on. Some of the most common mistakes have been listed below. By partnering with an experienced M&A firm like S&P Capital, you can avoid these costly mistakes.

• Not knowing the value of the business

  Every business owner has a business and growth plan when starting or acquiring a company, but very few ever prepare an exit strategy well in advance of considering a potential sale. Today, 65% of business owners do not know what their company is worth and 85% have no exit strategy. S&P Capital can help you begin developing an eventual exit strategy with a no cost, no obligation market analysis of your company.

• Using a multiple or ratio learned from a book

  There is no single multiple or ratio that applies to all privately held businesses. Each business is unique and requires a comprehensive review and analysis of the company. Then, the current dynamics in the M&A marketplace need to be considered when determining true market value.

• Selling at the wrong time

  Many sellers wait too long to sell, often because they wait too long to begin formulating their exit strategy. They invest a lifetime building their businesses, which often represent a significant portion of their retirement funds, only to sell too hastily after waiting too long, failing to maximize the value upon exiting. With an appropriate exit plan mapped out, the implementation is executed at exactly the right time. Many sellers implement due to external factors such as health, downward turn in business, or desires to pursue other interests not related to the business.

• Negotiating with only one buyer

  Business owners often receive inquiries from prospective strategic acquirers. These owners sometimes feel more in control when dealing with a single suitor that courts them, rather than having to actively seek out buyers. However, generating interest from multiple buyers can drive up the sales price. In addition, financial buyers can often pay higher premiums for the same business that strategic buyers are courting, and they usually make fewer personnel and cultural changes during a transition of ownership. Owners must also keep in mind that negotiations do not stop at price, type, or buyer. There a many other factors that an experienced intermediary can help each owner through, such as type of transaction, method of payment, included/excluded assets, and seller retention post closing.

• Rushing the sales process

  Once a business owner decides to sell, they want the process to be over quickly. However, systematically identifying prospective buyers, leveraging buyers to induce multiple offers, negotiating the best deal, then drafting, formalizing and signing closing documents can take twelve months or more. The selling process with S&P Capital takes on average five to eight months, and we manage every step on your behalf to allow you to maintain focus on your company.

• Not understanding a buyer’s motives

  While the value of a company is derived from the most recent historical financials, a buyer is looking for growth opportunity and synergies. Before dwelling on past performance, or just one potential avenue of growth, each prospective buyer should be interviewed and qualified to insure a good match and to determine potential synergies.

• Inadequate documentation

  Buyers expect professional financial documentation. Sellers need to prepare a recasted financial analysis of the past three years, with corresponding corporate tax returns, profit and loss statments, balance sheets, asset and inventory lists, customer breakdowns, and any other pertinent information that you and our team at S&P capital can collectively plan for. We also put together a full description of the business and the opportunity, outline the basic terms of sale and a 3-5 year pro forma, with a business strategy outlined to achieve those goals.

By partnering with our team at S&P Capital, we will help you avoid these mistakes and maximize the value of your business upon an eventual liquidity event. The only investment required to consult with our professionals is a little of your time. Give us a call today to start planning your eventual exit strategy.