When working with business owners interested in selling to a third party, Exit Planning Advisors need to do three things:
(1) help owners set goals that will allow them to determine whether an offer from a third party is “good” or “bad,” (2) educate them about the sale process, and (3) prepare their companies for sale.
However, some business owners are boundlessly optimistic about their sale prospects. This boundless optimism can make their business susceptible to Deal Killers.
WHAT IS A DEAL KILLER?
A Deal Killer is an undetected or unresolved issue that will destroy any hope of selling a business to a third party. Detecting and neutralizing Deal Killers is an important part of pre-sale planning, which itself aims to maximize profits and help owners achieve their Exit Objectives.
THREE PROMINENT DEAL KILLERS
The following list includes the three most common (and, fortunately, most avoidable) Deal Killers:
1. Owners’ beliefs that they can sell their businesses today for enough money to satisfy their post-exit goals, including financial security.
2. Owners’ failures to reconcile their need for value with the market’s perspective of value before going to market.
3. Owners’ exclusive focus on receiving top dollar for selling their businesses.
Each of these Deal Killers results from overly optimistic owners’ rose-tinted view of their own businesses. While boundless optimism is critical when founding a business, it must be less pronounced when an owner desires to exit the business, since it is often the cause of owners’ tendencies to consistently and dramatically overvalue their businesses.
The owners have a tendency to vastly overvalue their businesses and then demand unobtainable sale prices based on the overvaluation. This is a waste of owners’ time, effort, and money. Additionally, entering the marketplace with an absurd asking price only to exit when buyers don’t bite can irreversibly damage business value in the future.
Thus, it is imperative that business owners obtain a realistic valuation of their businesses (with the help of a credentialed business valuator) long before their planned exit date to ensure that they can achieve financial security after the exit.