Business Briefs |
Keep Your Eye on the Ball – And Close the Sale
Keep Your Eye on the Ball – And Close the SaleIf you’ve ever played a sport like racquetball or tennis, you’ve probably had the experience of getting a good lead in a game and feeling the urge to “let up” a little. After all, the game is nearly won. What could go wrong?
I play competitive racquetball and confess I sometimes catch myself easing up when I’m well ahead. Usually, that’s when I’m strongly reminded by an aggressive opponent that the game is not won until the last point is played. Then I either end up scrambling to salvage a win, or worse, I squander my fat lead and lose a game painfully. Aaaarrrggh.
A similar situation occurs frequently in the sale of a business. One of the biggest mistakes a seller can make once a letter of intent or purchase agreement is signed is to assume the deal is in the bag and to “ease up.” After all, we have a deal, and all that’s left is to close. How hard could it be? What could go wrong?
So the seller “eases up” on operating the business. Instead of digging hard for new business and managing each existing customer relationship rigorously the business seller slacks off a little.
Rather than cultivating vendor relationships, payables may slip a bit. Perhaps tempers flare at normal vendor slip-ups, because, “Hey, I don’t need this grief anymore! I’m almost out of here.”
With the distraction of the deal and impeding departure, employees sometimes get taken for granted. “They’ll be somebody else’s problem soon.”
Normal business practices of carefully monitoring margins and expenses and managing inventory sometimes grow lax…sort of like my high school senior and how “senioritis” affected his final term grades.
What Could Go Wrong? So what could go wrong in the sale of a business where letting up can either result in a last minute scramble to save the deal, or, worst of, all losing the deal entirely?
Well, after 20 years of selling companies, I keep learning that Murphy’s Law (“If something can go wrong, it will go wrong - and at the worst possible moment.”) is alive and well in the deal business. Even little bumps in the business road that would normally be taken in stride seem to have a bigger emotional impact when they occur in the middle of a business sale. Here are a few examples of what can go wrong:
Playing To Win. To win a tough racquetball match, I keep learning I have to keep my eye on the ball, pay attention to basics, take nothing for granted, don’t count on luck, play each point as if it was the winning point, focus on the game and strive to win each game like a racehorse going away.
Oh yeah, and if I get behind, never, never, never give up. Whether ahead or behind, it ain’t over ‘til it’s over.
In a business sale, the same factors apply. Sellers need to run their business during a sale process with the same intensity and commitment that they would have if they were going to keep it forever. Take nothing for granted and play full out through the closing. This yields four results:
Brought to You From the Court By: Michael Sipe
I play competitive racquetball and confess I sometimes catch myself easing up when I’m well ahead. Usually, that’s when I’m strongly reminded by an aggressive opponent that the game is not won until the last point is played. Then I either end up scrambling to salvage a win, or worse, I squander my fat lead and lose a game painfully. Aaaarrrggh.
A similar situation occurs frequently in the sale of a business. One of the biggest mistakes a seller can make once a letter of intent or purchase agreement is signed is to assume the deal is in the bag and to “ease up.” After all, we have a deal, and all that’s left is to close. How hard could it be? What could go wrong?
So the seller “eases up” on operating the business. Instead of digging hard for new business and managing each existing customer relationship rigorously the business seller slacks off a little.
Rather than cultivating vendor relationships, payables may slip a bit. Perhaps tempers flare at normal vendor slip-ups, because, “Hey, I don’t need this grief anymore! I’m almost out of here.”
With the distraction of the deal and impeding departure, employees sometimes get taken for granted. “They’ll be somebody else’s problem soon.”
Normal business practices of carefully monitoring margins and expenses and managing inventory sometimes grow lax…sort of like my high school senior and how “senioritis” affected his final term grades.
What Could Go Wrong? So what could go wrong in the sale of a business where letting up can either result in a last minute scramble to save the deal, or, worst of, all losing the deal entirely?
Well, after 20 years of selling companies, I keep learning that Murphy’s Law (“If something can go wrong, it will go wrong - and at the worst possible moment.”) is alive and well in the deal business. Even little bumps in the business road that would normally be taken in stride seem to have a bigger emotional impact when they occur in the middle of a business sale. Here are a few examples of what can go wrong:
- Unexpected Delays. Actually we should just eliminate the word “unexpected,” since there will be delays. While a seller might get by with a little operational sloppiness if a sale goes smoothly and quickly, usually there are delays related to due diligence, operational, financing, legal and accounting issues. If those delays extend, then that short term operational sloppiness can cause real problems as the business performance begins to slip.
- Adverse Business Development. I know it would not happen in your business, but in some businesses key customers, vendors and employees sometimes go away. Or a “sure thing” contract does not materialize. As a business seller, if you are not at the top of your game when that happens, your deal can get grim very quickly.
- The Buyer Notices. If the buyer assesses that the seller has taken his eye off the ball it can raise genuine concerns about the viability of the business being acquired. You can bet in a buyer’s due diligence investigation they will be on the lookout for this. If they notice (and they will), it can result in difficult re-negotiations or a terminated deal.
- 11th Hour Audit. Many due diligence activities are focused on historical records, but smart buyers want to track the health of the business right up to the very date of closing. If your business falls off for even the last couple of weeks or month before closing it can result in very challenging negotiations at the closing table.
Playing To Win. To win a tough racquetball match, I keep learning I have to keep my eye on the ball, pay attention to basics, take nothing for granted, don’t count on luck, play each point as if it was the winning point, focus on the game and strive to win each game like a racehorse going away.
Oh yeah, and if I get behind, never, never, never give up. Whether ahead or behind, it ain’t over ‘til it’s over.
In a business sale, the same factors apply. Sellers need to run their business during a sale process with the same intensity and commitment that they would have if they were going to keep it forever. Take nothing for granted and play full out through the closing. This yields four results:
- Short Term Income. You make good money operating the business during the sale.
- Better Sleep. When you have the business well in hand, you’ll experience much less deal related stress.
- A Closed Deal. You’ll close your sale at top dollar.
- A Dignified Sale. A sale made when your business is running well and you have given your best simply feels better than a sale you have to scramble to save. Since you don’t get to sell too many businesses in an entrepreneurial career, the memories of this sale will linger. Make them good ones. Exit going up.
Brought to You From the Court By: Michael Sipe