Continuing from the last article let’s suppose that A/P has not been updated and there was a significant increase over the last period. Expenses would then be understated and income overstated. Buyers connect a relationship of earnings to the selling price of the business. If the earnings are discovered to be a third less than what was initially presented, many Buyers feel the business should now be discounted by a third. It is very easy to see how this can become a recipe for disaster. Certainly presenting a business in the most favorable light is desirable. However, a due diligence will be conducted and negatives if undisclosed will be discovered. When they are they can lead to price concession demands or a deal rescission. Therefore, I advise my sellers to leave some positive surprises that will be uncovered during a due diligence. The more the business is studied by the Buyer, the more excited and committed he becomes.
This is just one set of why some business transactions fail. However, this is preventable and manageable. Therefore, the sin of overselling should never be committed. A competent Broker like the business brokers at Business search and consulting will be able to help you navigate through the nuances of presenting your business in the most favorable light without encroaching into the domain of overselling the business.
Christopher P. Mok has 25 combined years as a financial and transactional expert. He worked with publicly held companies at Coopers & Lybrand (now Pricewaterhouse Coopers) and the investment banking firm AGS Financial Corp. before founding Business Search Group in 1993. Valuations, building business value, exit planning consulting and middle market business sales are within the sweet zone of his practice. Win-win transactions are the cornerstone of our practice. Our focus is to assist organizations and individuals achieve their goals. Typical goal/projects are: Working with successful companies by finding strategic acquisitions. Assisting first time business owners in making their dreams come true.
