03 Jun 7 Common Mistakes made by Entrepreneurs During an Exit Strategy
Here are a few common mistakes that I have seen entrepreneurs and business owners make during the sell or acquisition of their business:
- Provide misleading information: When they sit down with an investment banker or strategic acquirer during the first discussions, they begin to provide information that makes the business look more attractive than it really is. While it is important to increase the value of your business, it is also important to provide information that is accurate and not misleading.
- Not knowing the numbers: providing a banker with misleading or inaccurate numbers of expenses and personal salaries that are higher than the market rate for the position the owners fill sets the deal terms and structure in the wrong direction. Once the business is under due diligence by a buyer the figures will be discovered and the deal will have to reenter negotiations. This could cause the deal to fall apart.
- Hiding illegal business activity: again, all of the dirty points in your business will be discovered during the due diligence phase of an acquisition. It is much better to get the skeleton out of the closet dealt with before a buyer comes. Deals will fall apart if they are discovered later.
- Not accepting a good offer: holding off on a good offer in hopes that another company or buyer will make a better one offer may cause the buyer to get anxious and walk away from the deal. If you have an offer that you would be happy accepting if it was the only offer you could get then why wait?
- Being to optimistic: while it is good for a business owner to see potential in his or her business, it is more important for that person to be realistic during an M&A deal. Having to high of expectations can cause the owner to miss out on a good opportunity.
- Negotiating his or her own deal: Just like the example with a car sales man, it is important to not let emotions get in the way of closing a good deal with a strong offer. Let a banker or board member assist you in the negotiations of the deal terms.
- Wait till he or she needs to sell: waiting till an emergency or lack of commitment and capacity demands that you sell will make you a motivated seller. This means that some shark will come along and take advantage of your situation and make a profit during your loss.