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Three Common Errors Caused by Inexperience

By Bernadette 3 years ago

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“There is no replacement for experience.” This maxim, that has stood the test of time, is relevant to business sellers because lack of experience can dismantle your deal.

Consider the following scenario. A business owner nearing retirement owns a multi-location retail operation that is doing several million in annual sales. He interviews a well-respected and experienced intermediary and is impressed.

However, the business owner’s niece has recently received her MBA and has told her uncle that she can handle the sale of his business and, in the process, save him a bundle. It sounds reasonable, but it turns out the niece’s lack of experience gives this business owner less than optimal results.

Let’s take a look at a few problems that recently arose with our nameless, but successful, business owner and his well-meaning and smart, but inexperienced, niece.

Error #1 No Confidentiality Agreements

One problem that arises is the business owner and his niece don’t use confidentiality agreements with prospective buyers. As a result, competitors, suppliers, employees, and customers all learn the business is available for sale. Of course, learning that the business is for sale could cause a range of problems, as both employees and suppliers get nervous about what the sale could mean. Ultimately, this could undermine the sale of the business.

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Error #2 Incorrect Financials

Another problem is that the inexperienced MBA was supposed to prepare an offering memorandum. In the process, she compiled some financials that had not been audited. While this seemed like a small mistake, it failed to include several hundred thousand dollars the owner took. He forgot to mention this piece of information to his niece. Clearly, this mishap dramatically impacted the numbers. Additionally, this lack of information would likely result in lower offers as well as lower bids, or even decrease overall prospective buyer interest.

Error #3 Failing to Include the CFO

A third key mistake in this unfortunate story was a failure to bring in the CFO. The niece believed she could handle the financial details, but her assumption was incorrect. The owner and the niece failed to realize that prospective buyers would want to meet with their CFO, and that he would be involved in the due diligence process. Not bringing the CFO on board early in the process was a blunder that greatly complicated the process.

The problem is clear. Selling a business is far too important for an amateur. When it comes time to sell your business, you will benefit from working with a merger and acquisition advisor who has a great track record. Again, there is no replacing experience.

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Copyright: Business Brokerage Press | Photo credit: BillionPhotos.com via Adobe Stock

The post Three Common Errors Caused by Inexperience appeared first on Eastwind Business Solutions.

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