Wrong Financial Advisors Far More Dangerous Than Economy
When approaching a business sale or business purchase, it is imperative to surround yourself with the finest financial advisors possible. Forget the economy. Nothing can cause financial damage in a business sale or purchase like inviting an advisor into the game who doesn’t know how to put his uniform on.
Unfortunately, I find myself encountering many advisors in the process of buying and selling businesses who do far more harm than help for the people they work for.
A few examples:
As seller is about to accept fair offer from buyer, seller’s accountant convinces the seller that the business is worth 2.5 times the offer on the table (market value). Deal dies. No interested buyers since.
Inexperienced seller’s attorney spends weeks scrutinizing a standard purchase agreement until buyer becomes frustrated and walks away to another deal.
Business broker grossly overprices seller’s business, brings no interested buyers and wastes 12 months of seller’s time. The business has since struggled and is now worth half what is was when first assigned to original broker.
Consultant advises business owner against strategic acquisition of struggling local company—suggesting the company’s accounts will be free if the business goes under. Other local competitor sees same opportunity and doesn’t wait--buys $750,000 of accounts and instant cash flow relief for pennies on the dollar.
How do business professionals choose financial advisors who a) do not know what they are doing and b) cause them to miss opportunities and make enormous financial mistakes in the context of buying and selling businesses?
They choose advisors out of loyalty/friendship regardless of qualifications.
They choose advisors who misrepresent or overestimate their own ability to serve their client’s best interests.
They choose advisors out of convenience or laziness—failing to consider the seriousness of the task at hand or the degree of specialized skill required.
Ensuring you have a strong team of “deal-makers” supporting you is critical to buying and selling businesses. It takes every professional and financial advisor on the team doing their job correctly to be successful—but only one to kill a deal. A few tips about choosing your team of financial advisors and professionals:
Attorneys: Make sure they have a history of business transaction experience. Get references. Find out from others if they are deal makers or deal killers?
Accountants: Makes sure they know how to protect your tax exposure and not just their own self preservation. Find out what they are doing for ongoing education in their field of expertise.
Business Brokers: Make sure they have significant deal making experience and understand how to value businesses in your specific industry. Get references. Find out how they add value to the process of buying or selling a business.
Financial Advisors/CFOs/Consultants: Many general business valuation rules of thumb do not apply in the transportation industry. Make sure the application of these advisors “expertise” is relevant to your business sale or purchase.
