A BizBuySell report shows a 55% increase in the number of M&A transactions in the 2013 and 2014 period as compared to the recession and recovery period of 2010 through 2012. Interest rates remain low and millions of baby boomer business owners are still behind the desk.
But these favorable selling conditions may not last. The 2015 Q1 Market Pulse Survey showed retirement was the number one reason to sell a business, meaning baby boomer business owners could soon saturate the market. What’s more, the Obama administration’s 2016 budget called for raising the top rate on capital gains from 23.8% to 28%.
While the iron’s still hot, it’s important for business leaders to stay nimble and ready for a potential deal, but, many lose sight of key factors that can make or break a successful sale.
During this time, check these 5 blind spots that could make it tough to sell when a deal comes your way.
1. Blinding financial focus. A company’s financial health is essential, but it’s a mistake to think it is the only thing a potential buyer will inspect closely. If your management team is poorly developed, your organizational structure is inefficient or your board of directors doesn’t function properly, the value of your business may suffer. Don’t let a financial-only focus take your eyes off of the bigger company picture.
2. Lack of customer diversity. If any one customer represents more than 20% of your revenue, you’re waist deep in customer concentration issues. Potential buyers could view this dependence on a few revenue streams as a risk, hurting your valuation multiple. Ideally, no customer should exceed 10% of total sales.
3. Delayed tech investment. Buyers want to invest in an efficient, relevant business. Those that have ignored investment in technology can be perceived as sloppy and outdated. Consider technology upgrades that will streamline your company and generate a strong return on investment.
4. Incompatible contracts. Contract language (or lack thereof) can stop a deal in its tracks. Do formal contracts for clients and suppliers exist? Are any of your contracts non-assignable? Is there a first right of refusal agreement? Make sure your legal documentation is ready for a sale when your company is.
5. Abandoned corporate objectives. Even “sure deals” can die. If you lose sight of the company’s strategic goals because you’re carried away with a potential transaction, you’re taking a big risk. Let trusted advisors guide you and your company through the selling process so you can focus on growing your company until the ink is dry.
Now is the time to sell a business. CEOs and business owners who check these blind spots regularly are better equipped to make the most of an opportunity while market tilts in their favor.