We often get this question in our Growth and Exit planning conferences: Why do I need to hire an M&A advisor?
The answer is you don’t!
Hundreds of businesses are sold every year by business owners without the advice of professionals. But, as we have seen time and time again, most of these entrepreneurs sacrifice a significant return on their investment because they make two huge mistakes:
Each of these can be disastrous on its own, but most folks make both mistakes. This is not a big deal if you are in a fire sale and must dispose of your assets quickly due to health issues, divorce, partner complications, etc. But these are not recommended motivations if you want the highest ROI possible. So, let’s look at both so you can avoid making them.
Financial Accuracy or NOT?
Sadly, most business owners don’t realize that their historical financials do not reflect the true profitability of the company. I am not impugning or disparaging your CPA. In reality, if they have done their job correctly over the years, they have saved you a ton in taxes, and done so legally.
But, when you start to ponder an exit, you must realize that all those savings you have enjoyed need to be added back in. Trust me, savvy buyers will take your historic financials and will “recast” them without you knowing it. They will then offer you an amount for your company based on your non-recast financials which, in most cases, will radically undervalue your business.
Please don’t make this first mistake. If you don’t hire an M&A advisor, then have a trained CPA who has done M&A work recast your historic income statements and balance sheets (at least 3 years back). You will most likely be shocked by what you see!
Buyers Are NOT All Equal!
When we have our initial meetings with clients, we always ask, “Who do you think would be the optimal buyer for your company?” The answer is invariably the same and usually wrong:
My competitor down the street!
And the follow-up is always this: Every year at our annual industry trade show, they hand me their business card with an amount written on the back. Then with a wink they say, “Here you go pal, all cash,” (with another wink). Oddly those amounts on the back have gotten smaller and smaller over the years…
If you take nothing more from this insight, then make sure you remember this: Do not limit your buyer list to your competitors. Now ultimately, your buyer may be a competitor. But if you don’t use a limited auction process with the support and guidance of a skilled M&A firm, you most likely will not get top dollar for your business.
The business genius Peter Drucker is reported to have famously once said, “The buyer rarely buys what the seller thinks he/she is selling.”
That thought is so profound, you really need to chew on it for a bit. Before your head hits the pillow tonight, ask yourself, “Why would a buyer want my business? What intangible assets does it have that would attract premium buyers?”
Let your subconscious mull that over for a few hours. When you wake up you should be surprised to learn that your business is worth far more to specific, active, buyers than simply one competitor (or Larry from your country club who has bought and sold “hundreds of businesses like yours”).
This is a key reason you need a professional M&A firm like Generational in your corner. Our deal teams are extremely skilled in creating a buyer list that will attract the most interest from the most qualified pool of buyers. Here is some proof of our skill in doing so:
In closing, please don’t make the two mistakes we have discussed. Don’t save money and sacrifice it on the altar of lost rewards. Be as savvy as a buyer and aggressively pursue the accurate valuation of your company AND a list of the best buyers for it. Your financial legacy depends on it.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2022 Generational Equity, LLC All Rights Reserved
it all started with a conference.
start your story today,
speak directly with one of our senior advisors +1-972-232-1121
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
Generational Consulting Group’s affiliates are all part of one corporate family, they work with one another and may work together to provide services to you. The sharing of your information among affiliates enables Generational Consulting Group to serve you more efficiently and makes it more convenient for you to do business with Generational Group. Generational Consulting Group is permitted by law to share information with its affiliates. All of our affiliates follow similar privacy policies.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Group.