Why Is This NOT A GOOD IDEA?
A potential buyer suggested I let them look at my company info and they’ll give me a market value.
Oh, let us count the ways. But the short answer is: because the seller will be at a disadvantage from the start and will probably lose significant value in the transaction, even if they later engage an advisor. Let’s start a list:
- Seller (you) lose the opportunity to make a positive first impression. You never get a second chance. Would you have an open house for potential buyers BEFORE you had a realtor go through it, note “low lying fruit” repairs that should be done, stage it, cleaned it and otherwise had it at its very best? Probably not! If your business is your largest asset, isn’t it worth a bit of preparation beforehand?
- Loss of confidentiality and nondisclosure. Loss of confidentiality can damage the seller. If clients, employees, competitors, vendors and others even suspect a deal might be brewing, the seller can experience significant loss of value. While the parties sign an agreement with both are dealing in good faith, it is difficult to be absolutely certain that there is no “leakage” on either side. It’s usually an easy mistake, someone is talking on their phone while waiting in line at the coffee shop, it’s overheard and smart people put things together. The seller stands to lose the most.
You heard about the employee who called a couple of his friends at a competing firm to see if there were any rumors about his employer selling? He saw some closed-door meetings occurring that were new. That call turned from unfounded gossip to a call from the owner’s largest customer. “Are you thinking about selling your company?” Uh Oh.
- You lose control of the process. Providing a potential buyer with the info they will want/need to make an offer is a step into the selling process. To provide the seller with maximum value, the process and the information should be carefully controlled by the experienced party representing the seller.
- You will have begun the negotiation. Do you know how to run a selling process? You started the clock by giving the information. Do you know what you could/should expect for the business in terms of price/terms/deal structure? Unless you are represented by a 3rd party, you don’t know how much info to share, when to stop responding to questions, etc. You may divulge too much, not enough, wrong type of info.
- If you have not previously vetted your own company internally (mini pre-due diligence) you may not even be aware of potential issues. They could be easily fixed and a non-issue, but you lose the opportunity if sharing information prematurely. Some could be deal killers and you are sharing information for no reason.
- Every sales process has its own “rhythm.” It’s critical for sellers to have the answers for “standard” questions ready to go prior to starting the process. There is an expected “flow” of information. If the process starts and stops, buyers lose interest, lose confidence, and/or underestimate Seller’s ability/value to them on a go-forward basis. Buyers will see risk if a seller can’t/won’t get the info they need.
- Buyers should be screened before you exchange information with them. Do they have the funds to make the purchase? What’s their experience with buying? If bought before, what do the former owners say? What is the health of their company? If they are offering anything other than cash up front, how do you know they won’t go bankrupt? What would be your position in with Buyer’s debtors/owners?
- If you go through this process with a buyer, and then decide to use that information to “shop” the company for a higher offer, you may end up alienating your best potential buyer.
- Buyers set “anchor” prices for companies based on their first impression. Starting with incomplete/incorrect info or not understanding the true potential value can set that anchor price too low. It’s much harder to convince a buyer that they should change their impression and pay more. *
The bottom line is: it is to the seller’s advantage to invest in a market estimate of value as a step in the process of transitioning the business, either to internal buyers or external buyers. The findings will be of benefit whether you plan to sell now or in the next year or three. If you’d like to discuss what your needs are or how we can help you work through your process, including ways your company can maximize its value, we’d be happy to have a confidential complimentary conversation with you about these or any other exit/sales/buying issues.
You can reach me via email: [email protected] or on my cell phone a: 224-688-8838.
We’re here to help you Harvest Your Potential!
*It’s a proven fact in negotiation.