The reasons for selling a company can be many. Some entrepreneurs do so because they cannot find a successor in their own family. In other cases, it is the heirs who decide to get rid of the family business. Unless we are talking about serial entrepreneurs who specialise in growing companies and selling them when they reach a certain size, the sale of a company is usually a special moment in the life of an entrepreneur. And in many cases they are not familiar with M&A processes.
No two cases are identical. But over our decades of experience advising on mergers and acquisitions, we have identified the most common mistakes entrepreneurs make when faced with the sale of their business. In this article we outline some tips on how to avoid them.
1. Be clear about the objective of the sale and be realistic
Before starting a sales process, it is important to clearly define the objectives. And these need not only be financial. Many entrepreneurs also prioritise finding a buyer who fits in with their business philosophy and who wants to be involved in the long-term development of the company.
At the same time, it is important to be aware that negotiation is part of the process and it will certainly be necessary to compromise on some aspects: earn outs, partnership agreements, guarantees, etc.
2. Develop a good business plan
It may be a counter-intuitive idea because at the end of the day the ultimate goal is to sell the business. However, having developed a Business Plan and being able to explain it clearly and coherently will be a key factor in seducing potential buyers. You must be prepared to answer many questions and provide financial information in an orderly fashion to gain the confidence of the investor.
3. Don’t neglect the business and prepare it for the day after
Throughout the negotiation process, the company should continue with its normal day-to-day business, without making radical strategic decisions. If, for example, new investments in fixed assets are unavoidable, it is advisable to discuss them first with the potential new owners.
However, it is also necessary to prepare the company for the day after, when we are no longer in charge. In order to avoid a break in the continuity of the business, a transition period is often agreed so that the entrepreneur in management functions remains in management for a couple of years.
4. Be careful about confidentiality, but be frank
An M&A process can be a vulnerable time for the company if the timing of communication to employees, customers, suppliers and even competitors is not well managed. It is a difficult balancing act between transparency with potential buyers and strict confidentiality with external parties.
5. Having the best sales advisors
It is advisable for the entrepreneur to avoid the wear and tear of being in the front line of the negotiation. In addition, having tax advice at this critical time can lead to significant tax savings.
Even the valuation of the company itself depends on many factors, all of which need to be taken into account: the economic situation, industry trends, size, margins, etc.
M&A is a highly complex and constantly changing industry. For this reason, it is necessary to have the advice of true specialists. Professionals such as the Confianz team, which has been helping companies to successfully complete their mergers and acquisitions, negotiating and drafting transaction agreements for years.