Many business owners are likely to receive weekly calls from people looking to buy their business. Some of these owners have not done any sales preparation. So, in the event that an unsolicited offer is attractive, but the business has not been prepared for a process, there are some things owners can do immediately that could impact value.
Bethany Michel, Managing Director of Harbor Group, says that before owners get ready, they need to make sure it’s a good deal first.
“I think a lot of people get an offer – maybe they don’t get called all the time, they haven’t had any type of market check to find out what a reasonable price is, what multiples are reasonable in their space. Maybe (the owner has) had a one-off conversation with a friend, but they are in a totally different business and industry and you are using it as a guide to determining the value of your business and it is unfortunately not the case. that it works. So while it’s not about officially putting your business up for sale, it’s about reaching out to people you know in your space or advisors that you may at least have to reject the offer on them. to make sure it is reasonable.
She adds that homeowners suddenly interested in selling are unlikely to be able to put together everything they need to be diligent overnight. But they should be able, at a high level, to talk about recent trends in their business, for example from a sales perspective, over the past few years. And given the circumstances of the past year, she says owners should be able to explain how it’s impacted their business.
“The high-level financial questions are going to be the most obvious questions people ask right off the bat,” says Michel. “If you can have thoughtful answers to these questions, it will help you a lot to get through at least the first part of the process. “
Sometimes during the due diligence process buyers can find information that kills a deal. These could include signs that the company engages in unethical practices, has a lot of lawsuits, does not pay taxes.
Michel says even issues that seem like deal killers can be negotiated, especially if the buyer truly enjoys the fundamentals of the business – its operations, its products and its finances. However, there are exceptions.
“There are instances where you discover legal issues or environmental issues that are difficult to quantify because you just don’t know what could or could be the result,” says Michel. “And maybe it’s far-fetched, but it’s just not worth the risk and they don’t want to compensate it. It would be the sort of thing that you could potentially give up because there is an unknown and potentially significant financial risk to the business, which you then take on yourself.
Michel, at the recent St. Louis Smart Business Dealmakers conference, spoke with Vic Richey, CEO of ESCO; Bo Butters, director of CLA; and John Chalus, director of corporate advisory, BMO Harris Bank; on the preparation of transactions. Press play on the video above to watch the full panel discussion.