Avoid a Last Minute Disappointment
Several years ago I received a tentative offer on one of my businesses. It was a reasonable offer, but as we moved forward, it fell apart. The devil was in the details.
From my perspective, the deal looked good. The buyer was in a similar business and was looking for synergies. We had them. We would allow them to diversify geographically. We had a good cash flow and a solid management team in place.
Unfortunately, during the final due diligence, I made some missteps.
At the time, I had only a rudimentary understanding of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). It wasn’t enough. I did my own calculations and presented it to the buyer. The next day I realized that there were other factors that I should have included, so I got my bookkeeper to run the numbers and he came up with a different result. Discussions were moving quickly and it looked like a win-win opportunity. I shared the new numbers with the buyer.
I slept on it, felt uncertain and I asked my accountant to verify the numbers… the result changed again. When I presented the third set of figures the buyer decided that I was trying to pull a fast one, and no amount of back peddling could change that perception. I lost credibility and trust. And the deal disappeared.
Since then, many business brokers have told me that most deals fall apart at the due diligence stage. It doesn’t make me feel better, but it makes sense. Unsophisticated sellers do their best to present a fair deal and may misstate or omit important details that buyers need in order to feel confident they are getting the true picture. The devil is in the details.
We’ve got a detailed Due Diligence Checklist that helps you to identify the items of greatest interest to prospective buyers. It could cost you the deal if you fail to prepare your business and the essential documentation before the opportunity is presented. On the other hand, while nothing is guaranteed, producing documentation with correct and detailed information greatly enhances your chances of successfully selling your business to a willing buyer.
Click here if you want that free list.
November 1, 2016
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