“Pass, shoot, score” is a famous quote from Disney’s movie, the Miracle. Being a former hockey player, I only wish it were as easy as it sounds in the quote.
Think about the odds faced by the group of college guys that comprised the 1980 U.S. hockey team. This rag tag group of college players beat some of the best teams in the world because of their stamina and mental toughness. Simply put, the team’s desire and will to succeed allowed its players to compete with and beat far more talented opponents.
In a similar way, business owners need stamina and mental toughness when managing their business. As any business owner can tell you, it is no easy task to run your own business. It requires working long hours, managing people and personalities, and making decisions to ensure that your company operates at a profitable level.
Perhaps the greatest challenge a business owner will face is the question of succession. There are many options in forming a succession plan and countless considerations when making this decision. A common exit approach for business owners is to sell their company to an outside party, a process that can be long and complex. Therefore, the business owner should begin thinking about this process a few years prior to the expected sale date. By starting early, the business owner can avoid many of the pitfalls that might otherwise stop a transaction from happening.
These “deal stoppers,” some of which can be addressed in the years leading up to a sale and some that must be addressed as the sale is being negotiated, include the following:
- Misrepresenting financial information to the buyer
- Significant customer concentration
- Shortfalls in net working capital as of the expected sale date, creating difficultly for the buyer to seamlessly continue operations of the business. (For more information on net working capital considerations, please see our e-book titled “Valuation Considerations When Buying or Selling a Business”)
- Obsolete company technology that needs to be updated
- Seller’s remorse – it can be more likely for the seller to have second thoughts about selling his business if he does not feel fully prepared and comfortable with the sale process
- Unrealistic expectations regarding the company’s value
- Reliance on key employees/owners that are looking to retire and lack of management depth
- Transition of customer relationship
- Length of owner’s post-sale non-compete agreement.
These potential “deal stoppers” are an owner’s opponent when planning to sell his or her company. It won’t take a “miracle” to overcome them, but advance planning is a must to ensure the greatest likelihood of success, just like the hard work put in by the 1980 U.S. hockey team on their way to the gold medal.