Running your business should always be your first priority.
KEEP YOUR EYE ON THE BALL
The period from listing your business for sale until closing could impact your pending transaction more than you think – or worse, it could derail the deal completely. It doesn’t matter if you’ve been successfully running your business for 3 years or 30 years, buyers scrutinize the Company’s twelve months leading up to the sale because this is the trend they’ll assume post-close.
Unfortunately, we’ve seen scenarios where business owners are distracted by the sale of their company and financial performance suffers resulting in either a renegotiated purchase price or the buyer walking from the deal. Conversely, we’ve seen business owners knock the cover off the ball throughout the process and benefit from an upward adjustment to purchase price.
HE TOOK HIS EYE OFF THE BALL
John D. retained our firm to support the sale of his niche manufacturing company. John is a typical entrepreneur who wears many hats in his business - from product development to financial controls. Given John’s daily impact and lack of management depth to support his operation, the sale of the Company occupied significant time and resources that would otherwise be focused on running his business. Over the period of a few months, sales began to soften and profitability dropped 20% YOY by the time we had the Company under contract with a strategic buyer. During due diligence, the buyer uncovered the softness and insisted that we put pencils down and postpone closing until the company got back on track.
Fast forward three months and the Company continues to dig itself out of a soft quarter. Exclusivity with the buyer has since expired and they are now pursuing alternative investments. Additionally, the other buyers who previously expressed interest are now offering lower valuations given the most recent dip in performance. Given the uncertainty of the macro economy and limited horizon on future sales, our client is forced to either sell at a discount or wait indefinitely until their sector shows improvement.
Two valuable lessons can be learned from John’s example. First, running your business should always be your first priority. You cannot sacrifice performance in the name of getting a deal closed. That doesn’t mean you can neglect the deal either – you must be prepared for the increased demands and learn to manage time efficiently. Second, having a trusted team in place to support the day-to-day in your absence will allow you to shift time to working on the deal as opposed to working on the business.