August 2013
13 Deal Killers to Avoid
by
Joan M. Ridley, CEPA, CBI, CFP™
The representations that you make when your business is in play will be confirmed by the buyer’s own advisors during due diligence. Anything to the contrary will harm or destroy your credibility and your intermediary’s. Buyers don’t like surprises.
Before meeting with an intermediary, put together your pre - due diligence checklist. It could take much longer than you anticipate to create and assemble the required information for the buyer’s due diligence team. Here are 13 common deal killers that are discovered during the due diligence process.
13 Deal Killers to Avoid
Financial:
- Hybrid accounting where cash and accrual-based methods are co-mingled
- Improper data entry that makes it nearly impossible to assess company performance
- Improper use of industry-recognized accounting software
- Home-grown or non-industry financial record-keeping systems that make it difficult if not impossible to accurately assess company performance
- Transactional or non-contractual revenues that were represented as recurring revenues
Customer Diversification:
- One or more customers that are responsible for more than 10% the gross revenues
- Divisions of the same customer that are counted as more than one customer
Employee Loyalty:
- Poorly drafted or non-existent employment agreements –they could invite law suits after closing
- Non-competes and non-solicitation agreements that do not reflect recent legislation
Sales/Marketing:
- The seller does the marketing and identifies new business while the sales people are merely order takers
- Lack of written retention agreements to secure salesmen and therefore customers
Vendor Diversification:
- One major supplier of the needed products or services
- The company’s agreements with the suppliers are either verbal are very poorly drafted
Time to Sell No Time for Surprises
Have an independent party prepare a pre-due diligence checklist. Review and post the documents that are available, create those that are not, and clean-up any items where necessary. This process is not guaranteed to catch everything, but it does reduce the likelihood of surprises that could scare off a buyer and compromise the credibility of you and your intermediary.
Joan M. Ridley is a Certified Exit Planning Advisor, a Certified Business Intermediary, and a Certified Financial Planner™. She is President of Business Wealth Solutions, a business consultancy that helps business owners improve performance and position themselves and their company for eventual ownership transition. Please call us for more information at 214-692-9192 and visit www.bwsllc.net
Copyright 2013 Joan M. Ridley