CEO Advisor Newsletter February 2023
7 Mistakes to Avoid When Selling
As a former CEO of a software company myself, I have built and sold businesses over the past 35 years, including mergers and acquisitions management positions for Corporate America, as well as mergers and acquisitions advisory services for the past 19 years for my own firm, CEO Advisor, Inc. Note that even with my experience in mergers and acquisitions (M&A), I engaged with an M&A advisor for the sale of my software company as you should never sell your own business.
Here are seven critical mistakes to avoid, and possibly have the perfect buyer slip through your fingers altogether.
Mistake 1: Not Planning Ahead or Waiting Too Long to Sell
Not planning in advance and especially waiting too long, can cause many business owners to miss their window of opportunity. It takes 6 months or more to sell a small to mid-size business. Planning is key to any successful business sale. You just never know when that perfect buyer will call you and is ready to make you an offer you can't refuse, or illness strikes and you need to sell your company - if only you were prepared!
Mistake 2: Not Thoroughly Preparing for the Sale
This mistake is extremely prevalent and is mind boggling to me. Business owners often spend decades building their businesses and then won’t spend 2-3 months to prepare their business for a sale. Optimally, you implement all processes, reporting and practices over the course of a year or two as you can't change everything overnight. There is a complete range of preparation tasks that will ultimately 1) Greatly enhance the price of your company and B) Greatly enhance your odds of securing a buyer and closing the transaction. Preparation of a Data Room is critical today and requires the expertise and efforts of a person experienced in Mergers and Acquisitions.
Mistake 3: Not Finding the Right M&A Firm to Represent Your Business
For continuity purposes, the same advisory firm that helps you with the preparation for the sale should be the same person and firm that sells your business. Otherwise, this can cost you a lot of time and money in the long run. Without this continuity of knowledge of your business coupled with the needed expertise, you may see no results and have to start the process all over again. Make sure to choose - and continue to work weekly - with a very seasoned, experienced M&A advisor. Make sure not to get passed onto a junior person, or have a junior person work on your sale behind the scenes. This will be a disjointed and very costly situation that may not result in a sale at all. CEO Advisor, Inc. personnel all have 30 – 42 years of experience as this level of expertise is needed in mergers and acquisitions to optimize and achieve your exit.
Mistake 4: Not Investing in an M&A Advisor in Order to Conduct a Competitive Sale Process
Too many CEOs and business owners are flattered by an inbound unexpected inquiry to buy their business and latch onto this “so-called” buyer – when 98% of them are not qualified or have the funds to close a transaction. After many years of hard work, the only thing that makes sense is to instill urgency and competition into a sale of a business and to have an experienced, focused M&A advisor conduct a competitive Sale Process – full stop. Business owners love to latch onto a single, unsolicited prospective buyer as it seems like a clean, simple slam dunk way to exit and sell, but this is just not the case 99% of the time and results in a long, tedious sale at a lower price and undesirable terms.
Mistake 5: Playing Negotiator Upfront and Expecting Too Much or Too Little for the Business
Too many business owners get a random call from a potential buyer and all of a sudden their head swells and they become an M&A expert despite zero experience. This segues into a price discussion – a very big mistake! Valuing your business and asking for an unrealistic price can destroy your chance to secure a buyer. Expecting to get top dollar for a business that is not prepared to be sold with little information available, that generates little profit, has low Gross Profit Margin or has slow growth is simply not realistic. Consider the size and health of your industry, the value (selling price) of comparable businesses, the economy, size of your business, growth rate, Gross Profit Margin, Net Profits, strength of your products, management team, and other factors when determining your value in preparation for a sale. But, playing negotiator yourself is a formula for a failed deal!
Another mistake is to value the business too low. Often business owners will price their business low because they are burned out, suffer from an illness or did not get good advice. Do your homework and listen to your M&A advisor. Review and assess research about other business sales and make prudent decisions to optimize your sale price and increase your odds of a successful sale.
Mistake 6: Not Being Engaged in the Sale at the Proper Time
Selling your business will take a team of a M&A advisor, a corporate/transaction attorney and a CPA/tax advisor. Your M&A advisor will lead and manage the process but don't underestimate the time and focus it will take for the entire sale process. Listen to your M&A advisor with decades of expertise and be engaged at the proper time, such as giving your presentation to prospective buyers, review and discuss offers with your M&A advisor and other key points in time. Mistake 7: Accepting the Wrong Offer or Buyer
Review offers with your M&A advisor and make the best selection for the long term. Ask yourself, is this the best company to buy and operate my business? Can they quickly connect with my customer base and learn how to market effectively? Does this buyer have the funds to close? When the business sale goes as planned, it creates a tremendous opportunity for both businesses. You need to stay engaged, work closely with your M&A advisor and continue your success as a team towards closing a transaction.
CEO Advisor, Inc. is an M&A advisor with the expertise and experience to help you through this challenging and exciting process. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. at (949) 629-2520, by mobile phone at (714) 697-3370 by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.
The Importance of Planning for Growth
- CEO Advisor, Inc. provides expertise in helping CEOs, presidents and business owners of small to mid-size companies focus on priorities to grow their businesses to the next level. We meet with many CEOs and business owners and we ask them critical questions about planning and managing their business such as:
- Does your company have a Strategic Plan?
- Does your company have a defined Sales Strategy to maximize sales?
- A Marketing Plan, Schedule and Budget to optimize leads and fuel sales?
- A monthly Forecast as financial goals to drive your business forward?
- What are your (the CEO's) strengths and weaknesses?
- Every business needs to plan - and execute on the plan. Unfortunately, many people associate planning with start-ups. As a CEO or owner of a small or mid-size business, can you afford not to plan? Do you prioritize, focus and manage your growth proactively? Are you wasting time and money due to lack of planning or are you achieving your goals on time and optimizing your sales, profits and the value of your business.
- Benefits of Planning
- Guide Your Growth
- Your business will grow or not depending on many factors, including overall economic trends, size of your industry, growth of your industry, your management team, your products and services, specific market needs, sales strategy, marketing, hard work and other factors. Businesses that plan do it to guide and accelerate their growth so they consistently move towards defined objectives rather than just reacting to business issues daily.
- Strategy involves taking a hard look at your products and services, your core competencies, your target markets, geographic sales coverage, your customers, pricing, your management team, operations, sales and marketing. Bring in a business advisor with the needed expertise to ensure your strategy yields success.
- Manage Priorities
- Managing people involves focus and constantly managing priorities. Allocate resources where they will generate the most sales and profit. Work towards your strengths and fill in the gaps for your weaknesses. Grow the company by doing the most important things according to your current needs and long-term objectives.
- Assign Responsibilities
- A plan gives you a place to develop organizational responsibilities. Accountability drives businesses forward. Assign tasks and projects that achieve your goals and hold your people accountable.
- Track Progress
- With a written plan and Management Dashboard of key performance indicators (KPIs) and metrics, you can track your progress towards goals, measure results, and better manage the business. Without a plan and reporting, how do you tell whether or not you are moving in the right direction or measure success? A Management Dashboard of monthly reporting to track key metrics in your business will generate a tremendous return on your investment.
- Specific Responsibilities, Goals, Tasks, Deadlines and Budgets
- We call these milestones. These key aspects of business planning are critical to business success. Effective management of your people coupled with time management and planning will yield higher profits and company value.
- Financial Forecast
- One of the most important aspects of strategic planning is the financial forecast. A business needs to set financial goals and targets to truly measure its success and drive the business forward. Without a monthly forecast you will never optimize your business and you will settle each month on results of the past.
- CEO Advisor, Inc. has the expertise, coupled with hands-on advice to help you plan, strategize, grow, increase profits and succeed. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. at (949) 629-2520, by mobile phone at (714) 697-3370 by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.