I was perusing some files and found a couple of our weekly memos from a dozen years ago. This one is advice to business buyers and it’s followed by advice to sellers. They are just as important today as in 2012 and in 2002, 1992, 1982, and beyond.
Buyers Mistakes
I’m always asked, what are the biggest mistakes business buyers make and what can buyers do to accelerate the buying process. The first mistake, and it’s a big one, is that they put all their eggs in one basket and stop prospecting for companies when they find a business they like, often before any analysis.
After that, it’s the following three things:
- No urgency is created, no timeline set, and thus the buyer gets stuck. The best thing a buyer can do is get the basic information needed to make an offer, make the offer, and keep moving. It could be moving on if a deal can’t be reached or moving to due diligence if a deal is agreed to.
- Getting bogged down in minutia. There is only one place for minutia and that is after a deal has been reached. Then minutia manifests itself with financing, due diligence, and the contracts.
- Managing risk as there are no perfect businesses and no perfect deals. A buyer can’t go into a defensive mode, they must stay on the offense. It’s how you buy a business and how you grow a business.
The above assumes one important thing and that is that the buyer doesn’t get frustrated and settle for a mediocre business (the only thing worse than no deal is a bad deal). We’re talking about buying a mature, profitable, and fairly priced company. Next, the same but for sellers.
“Buy a good business and make it great.” Richard Parker, Diomo Corporation
Business Sellers Realizations
Again, these were first published in 2012. The tips are still valid as not much changes in buy-sell other than the technology.
Recently I wrote about business buyer mistakes and this week it’s about business sellers and what they can do to accelerate a deal.
- Realize that getting the right buyer for your business isn’t easy. What may be easy is to get a semi-qualified buyer to make a high offer. However, then you must worry about the buyer getting financing, getting paid, getting the business back, etc. Make sure the buyer is a good match for the business and you.
- Understand that your business is not that special. There are set price ranges in which companies of various sizes sell. You’re not going to sell for 10X EBITDA just because some $400 million company in your industry did.*
- Due diligence is for proving what you told the buyer before the offer was made; it’s not time for surprises so disclose all red flags about the business early and realize it’s open kimono time, everything is shared. And, speaking of due diligence, don’t forget to do it on the buyer.
- Get an offer sooner vs. later. If the buyer is qualified to run the business, has money, can get financing, and you have a solid relationship then encourage an offer sooner vs. later. Don’t let the process drag on as it will drive you nuts and distract you from running the business.
* I saw (in 2012) an accountant’s worksheet where he used an 11X multiple of profit for a business doing $1 million in sales. Talk about being out of touch. And the worst thing is he gave the seller the impression the business is worth much more than it really is.
“The only way to make your dreams come true is to wake up.” Paul Valery