Beware The Iceberg
No, I am not talking about the cold-snap that recently hit the eastern seaboard. I am talking about the dreaded pieces of your business that sit beneath the surface that lay in wait, determined to sink any deal that comes near it.
When selling a company, business owners always want to discuss the good aspects of the business – the growth, the opportunity, the high-caliber management team, and any other shiny portion of ice that glimmers above the surface.
Buyers, however, can readily see what is visible on the horizon, and accept that as ‘given’ – so they spend the majority of their time worried about what is not yet visible: what issues lay beneath the surface that may cause the future of the business performance to be different than the past or present results.
Some of the items that buyers may worry about that may be lurking beneath the surface include:
- Owner’s importance to the business
- Macro industry or regulatory trends
- Employee commitment post transaction
- Accounting irregularities and revenue recognition issues
- Potential litigation
- Unsecured intellectual property
- Potential employment claims
- Unrecorded (or contingent) liabilities
- Customer, geographic, or product concentration
- Supply and issues
- Quality and warranty Issues
- Regulatory and environmental compliance
- Required (or deferred) capital investment
- Corporate culture and values match
Many of these issues take considerable time to put in order. In general, best practices dictate beginning to “groom” your business for sale 1–2 years prior to actually planning on trying to sell it. This will give you adequate time to get your house in order and prevent any of the above issues from becoming an impediment to moving a good deal to a successful closing, and to ensure that you receive maximum value for your business. Obviously, the secondary benefit is that your business will become better-run and more solidly fortified through the process – which is a good thing whether or not you actually decide to sell the business. Finally, getting your house in order helps you to be prepared to capitalize when that high-value buyer approaches you unsolicited, and expresses interest in buying the business.
By avoiding the icebergs, your company sale process should enjoy smooth sailing to a successful and high-value acquisition.