Top Five Concerns When Selling

After countless business owner conversations during the past 15 years, a few common concerns have surfaced again and again.  “Indeed, selling a business in New York City or any metropolis can feel overwhelming and be very complicated,” says Achim Neumann, President, A Neumann & Associates, LLC, a New Jersey based Mergers & Acquisitions and Business Brokerage firm, “It’s understandable that business owners have many concerns.”

Following are the top 5 most often heard concerns by business sellers.

#1 Expectations About A Business’ Value

The majority of business owners are very emotionally invested in their companies – quite often translating into unrealistic expectations about the business’ value.

Furthermore, owners often ignore significant value drivers such as market share, macro economic market forces, competitive advantage, growth aspects, and relative profitability.

Good professional advisors have a thorough understanding of how such value drivers in combination with the overall marketplace affect the ultimate value of a business transaction. The advisor’s role consists of assessing such market environments and to package a business into a compelling deal.

This includes the analysis of the business’ operational and financial information, the determination of the business’ true cash flow and benefit to the owner, and the formal valuation process to be executed by an external accredited valuation firm.

Finally, an advisor’s negotiation and communication skills can further substantiate the value of a business in negotiations with buyers.

#2 Breach Of Confidentiality

Almost without exception, all business owners are concerned with preserving confidentiality throughout a sale transaction. Violating such can have significant negative impact with lenders, employees, landlords, customers, and suppliers.

A good M&A firm in Connecticut or any state for that matter has the proper security measures in place – not only starting with a fourfold investor pre-qualification process, but also to provide information to an investor as the investor shows increasing interest and motivation to execute a deal.

For that matter, the advisor prepares a blind profile, sometimes called a teaser, outlining the generalities of the transaction, market place, and business. Subsequent to a thorough pre-qualification, the investor will then obtain the Confidential Memorandum. Once the investor expresses interest and can respond properly to the initial questions, an introduction to the seller will be arranged.

This refined process of ‘leading the horses to the water” ensures the confidentiality of a transaction.

#3 Insufficient Financial Reporting

Insufficient financials don’t necessarily have to prevent a business owner from selling a business or to accept a lower business valuation or transaction price. A good advisor will give sellers an early heads-up as to what needs to be improved in the financial reporting system. Often this can be accomplished with rather small adjustments.

Business owners and advisors need to honestly discuss such deficiencies, remedies and how it will impact the anticipated business valuation in New Jersey or any other state. A seller needs to understand the need for an immediate, consistent and correct financial reporting system as it will surely be requested from potential buyers.

Moreover, good advisors will help owners to deal with financial challenges by offering an early and confidential picture of operational costs, recurring expenses, and implied transaction value. Streamlining financial reporting in preparation of a sale will reduce time during due diligence, and more importantly, will avoid generating mistrust on the buy side once an offer has been agreed upon.

Finally, a professional advisor will produce a professional blind profile/teaser and a Confidential Memorandum – substantially driving the value of the transaction.

#4 A Difficult Transfer Process

Business owners are usually industry experts – highly competent in the day-to-day operations of their business. Selling a business is a completely different transaction – one in which business owners are not familiar with.

Generally speaking, most business owners feel intense anxiety during the sale process, particularly during periods of uncertainty or conflict. Every deal comes with a unique set of challenges.

A good M&A advisor in NY or other state does not expect a business owner to be an expert, but he/she will navigate the owner through the deal process. Being proactive, a good advisor can reassure a seller during these uncertain times.

Such re-assurance prevents a loss of momentum that ultimately can kill deals. Buyers sense uncertainty on the sell-side and are inclined to lose interest in a deal in such a scenario – often interpreting such uncertainty as lack of motivation on the sell-side.  Good M&A advisors can put a stop to this process before it spirals out of control by instilling confidence and ensuring the deal is appealing and efficient to all parties.

#5 The Process Will Be Too Time Consuming

Indeed, selling a business takes a lot of time – all distracting from the owner’s day-to-day operations (resulting in lower profitability and thus, value). Owners should not take their eye off their business during the transaction process.

Selling a business is a full-time job in its own right, and for that reason, we always suggest to hire an external advisor as opposed to “doing it yourself”.  Well-experienced advisors indeed know that the 8-12 month time line needed for a business sale can be detrimental to the business’ performance.

Thus, the best advisors urge owners to maintain their business’ performance – freeing up the owner’s time by navigating through the ins and outs of the sale. This includes a lot of “after hours” meetings addressing that most owners work around the clock.

One industry mantra is that every deal dies three times – no deal is a certainty, but consulting with an experienced M&A advisor will significantly increase the odds for a successful closing.