6 pitfalls to avoid when selling or merging your company

By Emma Peterson.

Learn how to put value in both the buyer and seller’s pockets during a merger or acquisition while still protecting your existing team.

Long-term success looks different for every company and business. For some, the future looks like selling a successful business while others might want to stay at the helm for a bit longer. But there are many challenges and learning curves involved in navigating the process of mergers, sales, acquisitions and such. In this article, we wanted to share some of the common pitfalls that can disrupt the sales process and/or value of the sale.  

1 – Over- or under-valuing

It can be hard to put a price on years of hard work, but if you are looking at sales or mergers, it’s a necessary part of the process. It’s important to prepare carefully by looking into your financials, legal documents and more in order to find a realistic price to attach to your business. This can be a hard balancing act as setting the price too low not only undervalues you and your team’s hard work, but also can cost you money, but unrealistic prices can scare off potential buyers. We recommend paying close attention to market conditions when choosing a price that reflects your business’s worth, along with using professional financial/valuation services when in doubt.

2 – Lack of clear communication

For any merger and acquisition to succeed with all parties feeling accomplished, there needs to be clear communication. Not only does this mean making sure both the seller and buyer are on the same page of the deal’s structure (things like seller financing, earn-outs and more) but also knowing when not to talk. It’s important to ensure confidentiality through non-disclosure agreements (NDAs) so that you can manage the merger or sale information release carefully. If handled improperly this can cause uncertainty and distrust in employes, customers and suppliers, which can harm the business and the potential sale.

3 – Lack of legal preparation  

Before entering any potential sales or mergers, it is key that you have all your ducks in a row, especially the legal ones. Unresolved issues like missing permits or compliance violations can be the ending blow for sales if not addressed in advance. Make sure to conduct a legal audit so that you can address any outstanding licensure or compliance requirements before they become issues.  

Another facet of legal planning in advance for sales or mergers is the tax implications. If not understood properly, some sellers might end up with higher-than-expected tax liabilities, which lower the profit of the sale. It’s important to talk to your tax advisor, or find one to work with, to make sure factors like capital gains, depreciation recapture and installment payments are accounted for.

4 – Emotional impacts

Saying goodbye to a business you’ve put blood, sweat and tears into is hard, and overlooking that can lead to a series of issues. While in the midst of negotiations, make sure to acknowledge the emotions that will be affecting your decision-making abilities and find an objective advisor to help give a clear, outside perspective. You must also be prepared for the emotions and logistics of the aftermath of the deal. Without having a clear plan of action for this time, you may face personal or financial challenges related to tax implications, retirement plans or future business ventures.

And you are not the only one with an emotional stake in this game. Make sure you are communicating with and keeping connected to your employees during these processes. It’s important to keep key employees motivated and engaged through incentives like retention bonuses. This avoids the pitfall of losing key employees during or after the sale, which negatively impacts the business’s value and operations.

5 – Operational issues

Once you start going down the sale, merger or acquisition path, it can feel all-consuming. It might seem like the only thing you can focus on. But you have to be careful to make sure you don’t let it steal your attention too far away from the day-to-day operations of your business. If your business begins to decline in performance, it might scare away partners/buyers and it lowers your business’s value. A great way to help navigate this balance is by delegating tasks to trusted employees so that both your daily operations and the deal negotiations get the attention they deserve.  

Operations are also something that need to be considered in the post-sale transition period. If you do not set up a clear transition plan (one that outlines roles, responsibilities and timelines for both the seller and buyer during the handover period), you might see the business struggle with operational disruptions. Not only does this damage your relationship with the customers who experience this, it can tarnish the entire business’s reputation.  

6 – The wrong buyer

A huge challenge that is encountered by many contractors trying to navigate a deal is finding the right buyer. Failing to vet buyers properly can lead to you entering negotiations with unqualified buyers and wasting your time. It’s crucial to assess your potential buyer's financial capacity and business acumen before getting too far into negotiations. In addition to the logistical side of finding the right buyer, you also want to look at their business culture and intentions to make sure it is the right match for your existing team.  

Conclusion

In addition to the solutions mentioned above, you can also work with a trusted advisor like Maven Group, LLC to navigate this process. No matter what you’re wanting in the future, Maven Group can offer expert guidance and consulting designed to increase your profitability and value in the marketplace. They do this by fine-tuning company processes, analytics and decision-making prior to any sales to ensure that you maximize sales proceeds while keeping your established team protected.