As an M&A advisor having participated in the sale of businesses ranging in price from $500 thousand to $100 million, I enjoy watching ABC’s Shark Tank. On the show, entrepreneurs pitch their businesses to a panel of five investors (“sharks”) who then decide whether or not to invest. Today I want to pass along three key takeaways from Shark Tank for every business owner who plans to sell their business some day.

1. The business valuation has to be realistic and defensible

Many times on Shark Tank, the valuation of a company is way too high. The asking price is not based on sound valuation principles and is not defensible. The Sharks opt out because the owner is unrealistic. This is an important lesson for business owners looking to sell their company. A realistic and well-supported valuation invites serious and capable buyers who seek a reasonable return on their investment, and an unrealistic valuation chases away buyers.

2. Presentation is fundamentally important

The Sharks don’t know anything about the companies prior to the pitch, and the sellers get one shot at presenting their information in the Tank. This is the same in a business sale process. Potential buyers don’t know much about the seller’s business, and if they are familiar it, they don’t know the details of the financials, operations, personnel, markets, customer base, systems, etc. Brokers know the kind of information buyers want and need, and how to position a company for sale or investment. They prepare a Confidential Information Memorandum for use in the sale process to give qualified buyers the information they need to make their best offer, and an offer that will survive due diligence.

3. Deal negotiations – competition is key

Sharks, like all buyers, hate competing for a deal. Sellers love competition because they get to choose the best terms available in the market. Having a broker in a deal creates competition among potential investors (buyers) because brokers promote the acquisition opportunity to a broad and targeted audience. Envision a shark feeding frenzy! Even if only one buyer prospect comes along and begins the negotiation process, they know that low-balling a fairly priced business will likely not fly in a competitive open market of buyers being orchestrated by an experienced broker. In the absence of a broker, it’s anyone’s guess where things will end up, but not likely as good of a deal in the absence of a competitive environment.

Keeping these three lessons from Shark Tank in mind as you go through the exit planning and business sale process will likely lead to a better outcome for you and your stakeholders.

Not familiar with Shark Tank? Shark Tank is an Emmy Award-winning structured reality television series on ABC, now in its tenth season.  Watch Shark Tank on ABC.com

For more information on buying or selling a business, Email Louis Cionci at LCionci@exitstrategiesgroup.com or call him at 707-781-8582.

Exiting right requires early planning and help from a team of advisors that is often formed by a company’s CPA.

In our work as M&A brokers, business owners often come to us emotionally ready to sell but unrealistic about the value and condition of their business. And frequently they are out of time or unwilling to re-position the business for a more lucrative sale.  Misconceptions, clouded judgement and lack of planning are all too common. Fortunately, a growing number of business owners are turning to their CPA’s for early exit planning assistance.

Potential CPA Exit Planning Services

• 3-5 years before exit.  A top business CPA can help assemble a team of advisors that typically includes an M&A advisor, a personal financial planner, a business attorney, and perhaps an estate planning attorney. The CPA can recommend a business valuation or a sale readiness assessment by the M&A advisor and run tax calculations under likely deal terms. They can help the client select their best exit option, and if gaps exist, the team can assist with developing a comprehensive exit plan, which typically includes a business growth plan.
• 2-3 years before exit.  Top business CPA’s provide finance and accounting advice and services.  They can Review or Audit financial statements. They can recommend that a client stop co-mingling personal expenses and adjust related-party transactions to market, help clean up the balance sheet, shore up accounting systems, staff, policies and practices, help organize all financial records, and create important management reports — all things that buyers and their CPA’s and lenders expect to be in place.
• 1-2 years before exit.  The CPA can perform a sell-side Quality of Earnings (Q of E) analysis of historical reporting. Q of E often covers revenue recognition procedures including rebates, discounts, allowances, credits and collections, analysis of accruals and contingent liabilities, identification of non-recurring revenue and expenses, working capital level analysis, adequacy of capital expenditures to sustain performance and operational plans, changes in personnel and compensation, and stratification of revenue and gross margin by customer and product. Basically, whatever it take to understand and verify the underlying economics of a particular business.
• During the sale process.  The CPA can provide tax / deal structuring advice, financial and tax due diligence support, and financing support for lender(s). They can also provide or recommend post-closing investment support.

What Business Owners Should Do

Early involvement in exit planning by a seasoned business CPA can help company leaders increase shareholder value, improve marketability, and ensure that owners are able to exit on their own terms and time frame.  When selecting a CPA for your business, ask about their experience and track record in helping other clients achieve more successful exits. Then choose accordingly.

Loui Cionci, ABV, CPA, is a senior M&A advisor and business appraiser with Exit Strategies Group.  For more information on exit planning services, help finding an experienced business CPA, or selling a California business, contact Louis at LCionci@exitstrategiesgroup.com or call 707-781-8582.

Finding a willing buyer for your business is worth celebrating, briefly. In my experience, a majority of owner-negotiated “deals” fall apart before reaching the closing table.  In this post I will discuss several common deal breakers that I’ve seen, mostly involving differing expectations and poor preparation, and how you can avoid them.

But first I want to be sure you know what a Letter of Intent (LOI) is. An LOI is a non-binding agreement between a buyer and seller that memorializes major deal terms and steps to closing. It is entered in to BEFORE due diligence, legal documentation and escrow processes. Done properly, an LOI does a lot to align the expectations of each party, which is critical to consummating a sale. Deals also dissolve when a buyer negotiates terms with certain expectations, and later finds reality to be different.

So, what are these deal breakers?

Ambiguous Deal Terms

There is probably no larger risk to a deal than agreeing to ambiguous or contradictory deal terms. Writing an effective Letter of Intent can be tricky because it is negotiated early in the sale process, prior to disclosure of all pertinent information about the business. Nonetheless, the Letter should at minimum include assumptions used to negotiate deal terms, the deal structure with purchase price, a timeline and conditions to close. Additionally, it may include no-shop and confidentiality provisions and other terms to protect the buyer and seller’s interests. Regardless of the Letter’s content it should be clear, comprehensive and sufficiently detailed to anticipate future surprises.

Poor Record Keeping

The Due Diligence process provides an opportunity for the buyer to confirm that the information previously presented to them about the business is true and correct. A company with poor record keeping practices may have a difficult time providing evidence that they are in compliance with applicable laws, have enforceable contracts with suppliers and customers and accurate financial statements. Without accurate and complete records, buyers are uncertain of what risks they are acquiring and will be reluctant to close the deal.

This is particularly true for financial records. A seller should be prepared to provide prospective buyers with clean and verifiable financials for a minimum of the past three years. A special case is if the owner has claimed personal expenses that he has run through the business and wants to “add-back” as part of establishing the value of the business. These expenses should be well documented to be acceptable to prospective buyers.

Prior to taking the business to market it is well worth conducting a pre-due diligence exercise so that any weaknesses in record keeping are identified and corrected.

Misrepresentation of Facts

Business owners are anxious to sell the potential of their businesses. However their enthusiasm can lead them to put a positive spin on information at the expense of accuracy. The first time a buyer discovers something factually incorrect about an owner’s claims their suspicions will be triggered. If more inaccuracies are revealed, confidence in the deal can be eroded. Even if the exaggerations don’t add up to much, many buyers will walk away for fear there are larger surprises hidden in the shadows.

Unaddressed Business Risks

All businesses confront risks that a buyer will learn about either during due diligence or later. For example, a strong new competitor is entering the market or a key employee is retiring. If a buyer perceives that the seller is either not addressing or has not disclosed these risks they may lose interest in acquiring the business. An owner that confronts these risks head-on will be well regarded by prospective buyers and will improve their chances to close a deal. Even if an owner may not have had the time, people or cash to mitigate the risk, a buyer prospect may be able to bring fresh resources to the table and turn what was a problem into an opportunity.

Business Erosion

A buyer forms expectations about the future performance of the business based on the financial information provided to them. A buyer is generally willing to pay a fair price for the business based on those expectations. However, if between the time that a deal is struck and the transaction closes, the financial performance of the business suffers a buyer might get cold feet or want to renegotiate terms.

The sales process can consume a lot of time and energy. The role of the intermediary is to assure that the process stays on track while the owner remains focused on running the business and maintaining its performance.

Deal Fatigue

A deal that takes too long to complete is at risk of never being completed. Typically, upon signing a Letter of Intent there is a level of excitement about the prospect of a completed deal. The enthusiasm helps to carry the process during the emotionally challenging due diligence phase.

However, enthusiasm often fades if the process doesn’t continue to move forward. When either party is uncertain of the deal or is otherwise distracted they may be slow in responding to requests for information or completion of tasks. Deal fatigue can also occur when one party makes unreasonable demands or aggressively tries to renegotiate the terms of the deal. The most painful negotiators bring up the same points repeatedly. Eventually one party or the other will walk away.

There are effective strategies to combat deal fatigue: 1) screen buyers to assure that they are serious about and capable of completing the deal 2) disclose upfront material information about the business 3) write clear deal terms that don’t lend themselves to renegotiation 3) develop a deal timeline that compels both parties to keep the process moving forward.

The difference between a done deal and a busted deal is often a matter of setting and meeting both buyer and seller expectations. Employing an experienced intermediary to manage the sale process will help you avoid common deal breakers and address the inevitable biases and personal feelings of parties involved in a high stakes transaction.

Adam Wiskind is a Certified Business Intermediary in Exit Strategies Group’s North San Francisco Bay Area office. He can be reached at (707) 781-8744 or awiskind@exitstrategiesgroup.com.