Top 10 Deal Killers

by

Joan M. Gruber Ridley, CFP™, CEPA

As we meet with business owners we are constantly reminded that most are unaware of what potential acquirers are looking for when they are in anacquisition mode. To some extent, the type of business or industry will define the deal breakers. Some can be determined by a quick glance at the basic information produced by the mergers and acquisitions group representing the seller. This means that the acquiring entity knows what it is looking for and can quickly root through numerous summaries. Such a search becomes a process of elimination. Quality mergers and acquisitions firms will look at several businesses before accepting an assignment to find an acquirer because they work chiefly for a success fee. If your business does not go to closing, they don’t make money. If you are thinking that you will get in front of a buyer and “explain”, chances are you will never have that opportunity. You have to first sell yourself to the mergers and acquisitions firm before they will take you on. The following is a list of the most common deal killers if you are seeking top dollar for your business, and, how to address them.

Unrealistic Price and Term Expectations
Retain a credentialed business valuation professional to prepare an opinion of value long before your business is in play. Do not rely on industry hear-say or well-meaning advisors who do not prepare business valuations as a profession. A well-prepared valuation will yield a great deal of useful information.
Inexperienced or Uncooperative Advisors
Take stock of your team of advisors when preparing to exit and replace uncooperative or inexperienced advisors with those who are up to the task.
Low Market Share
Take a look at your business model, marketing plan, sales force, management, executives, operations, and financial record-keeping. The clue to why your business has poor market share can often be found in one or more of these areas. Increasing market share involves far more than just hiring more sales people.
No “Secret Sauce”
Create a product, service, or process that is needed and unique and then retain an experienced intellectual property attorney to take steps to protect it. Create something that the most attractive buyer wants.
Unattractive Business Model
What business are you really in and will it drive value through many business cycles? Maybe you have been offering the wrong product or service, or maybe your pricing is wrong. Develop strategies to insure recurring revenues, resulting in sustainable and increasing cash flow. Develop a sound plan that can withstand competition and market downturns.
Lack of a Functioning Marketing Plan
Have a clear, written, plan to develop a steady flow of profitable business with a defensible strategic plan for growth. Analyze the profitability of each product or service and tie that into how you compensate your sales force.
Unproductive Sales Force
Maintain a sales force that is constantly bringing in profitable business consistent with the marketing plan. Hire a sales management consultant or an in-house sales manager to maximize your sales team’s performance. Let go of any salesperson who does not perform.
Lack of a Key Person Retention Plan
Make a plan now to retain key people after you exit and be sure it is appropriately and fully funded. The plan needs to include value-enhancing benchmarks for future performance. If your key people are not the caliber that would impress a buyer, replace them now.
Unclear Post Exit Goals and Capabilities
Get expert advice about what net after-tax, after-fees proceeds you will need to support your post-exit goals. Without this, you are not planning, but wishing and hoping.
Inaccurate or Poor Financial Record Keeping
Clean up your books, hire the best accounting firm you can afford, and wean yourself immediately off unacceptable tax reduction strategies. Relieve your accountant of his/her duties if he/she condones strategies that would not stand up to IRS scrutiny. Such practices are likely to destroy the value of your business, no matter how profitable it might be. Have an audit done on a regular basis by a reputable accounting firm.

Risk versus Reward

A buyer looks at a business from the standpoint of risk versus reward. The question a buyer asks is “what rate of return will I receive for the risk I am contemplating”. Poor marks for the 10 items listed above will result in lack of interest on the buyer’s part, or, if the process proceeds far enough, lower than wished-for offers.

Invest Time Now

If you are contemplating exiting your business for top dollar within the next 5 years, today is the best time to begin to address these issues. It always takes longer than most people think because: 1) a team of quality advisors is a challenge to locate and assemble; 2) it takes time to produce all your documents so your advisors can get to work; and 3) it always takes longer than most people think to enhance the value drivers.

One Last Deal Killer

Motivation – Without it, you are not serious about selling for top dollar and will always delay taking those important steps to reach your goal. Buyers and mergers and acquisitions people can spot an unmotivated seller and will not give your business a second glance.

Joan M. Ridley is president of Business Wealth Solutions, a Dallas-based advisory firm that consults with business owners about how to successfully grow and leave their business. Visit our website at www.bwsllc.net. Call us today at 214.692.9192 for a complimentary meeting to learn how we can help you get where you want to go.

Copyright 2008 Joan M. Ridley