Imagine this: after years of building your business from scratch, you've finally decided to sell it through a merger or acquisition.
You're thrilled at the prospect of reaping the rewards of your hard work, but there's just one catch: M&A deals can be complex and challenging to navigate. We've seen firsthand the mistakes that sellers make during the exit planning process that can negatively impact the outcome.
In this article, we’ll share with you the most common exit planning mistakes to avoid in M&A deals, so you can achieve the best possible outcome from the sale.
#1: Waiting Too Long to Start Exit Planning
One of the most common mistakes business owners make is waiting too long to start exit planning. This can lead to a rushed process, which can negatively impact the value of the business. It is important to start exit planning early, ideally two to three years before the planned exit. This will give the owner ample time to prepare the business for sale, address any issues, and maximize its value.
#2: Failing to Identify Key Value Drivers
Another common mistake is failing to identify the key value drivers of the business. The value drivers are the factors that make the business attractive to potential buyers, such as its customer base, intellectual property, or skilled workforce. Identifying these value drivers early on can help business owners prioritize their efforts and increase the value of their business.
#3: Not Preparing the Business for Due Diligence
Due diligence is a critical part of the M&A process, and not preparing the business for it can lead to significant issues. Business owners should prepare their business for due diligence by ensuring all financial records and legal documents are up-to-date and readily available. They should also be prepared to answer any questions about the business's operations, customers, and employees.
#4: Failing to Communicate with Stakeholders
One of the most common exit planning mistakes is failing to communicate with stakeholders. This includes employees, customers, and vendors.
If your stakeholders feel left in the dark, they may become anxious or even feel betrayed. This can lead to a loss of trust and even impact your business's value.
To avoid this mistake, be proactive in communicating with stakeholders throughout the M&A process. This can involve updating them on the status of the sale, addressing any concerns, and even preparing them for potential changes that may result from the sale.
#5: Ignoring the Importance of Culture Fit
Culture fit is an often-overlooked factor in M&A deals. Ignoring it can lead to a failed deal, even if the financials make sense. Business owners should consider the cultural fit between their business and the potential buyer, including their values, management style, and work environment.
Mistake #6: Not Having a Contingency Plan
Finally, business owners should always have a contingency plan in place in case the M&A deal falls through. This can include having a backup buyer or alternative exit strategy. Without a contingency plan, business owners risk being left in a difficult situation, such as having to quickly sell the business at a lower price.
Selling your business through an M&A deal can be a life-changing decision, but it requires careful planning and execution to exit properly. Remember, every decision you make during the exit planning process can impact the outcome of the sale.
Take the time to do your homework, work with a team of professionals, and be proactive in addressing any potential concerns. With this approach, you’ll be able to achieve the best possible outcome from your M&A deal and move on to your next venture with confidence.
