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The 5 U’s of No Deal by Paul Fackler
22
Aug 2018

The 5 U’s of No Deal by Paul Fackler

By The CBA Group

 The 5 U’s of No Deal

Have you ever been tapped on the shoulder by someone interested to buy your Business? It’s a simple question. “Are you interested in selling?” At the same time, it’s also a loaded one. 90% of the time, the response is “no, not at this time,” and for the other 9%, expect to hear “sure, for the right price.” Loosely translated, “give me an arm and leg.” Can you imagine refusing to sell Microsoft stock without listening to the Buyer’s offer first? Of course not! This brings up the question, why do Small Business Owner’s automatically refuse entertaining a presumably qualified Buyer’s offer?

 Here are the reasons:

1. Unprepared to have the conversation and caught off guard
2. Unsure of the Business’ value
3. Unsettled about confidentiality, i.e. what if the employees or customers find out there’s an offer on the table?
4. Uncertainty about future employment
5. Understaffed and not enough time


In the next few weeks I’ll outline each of the five U’s that cause a “No Deal” before an offer is made. If you’re a Business Owner or help Owner’s as an attorney, CPA, financial advisor, etc., the upcoming article series may be helpful for you to explore and perhaps implement.

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Prior Planning Prevents Poor Performance: 

Welcome to part one of a five-part article series outlining the reasons Small Business Owner’s instinctively and automatically decline entertaining an offer from a presumably qualified Buying Party. One of the interesting dynamics of a Buying Party approaching an Owner with intent to purchase, is not only that Owner’s decline the opportunity for Buyer “participation,” but from my experience, Owner’s tell the white lie- “No, we’re not interested in selling at this time.” There are five core reasons I’ve identified and will discuss in this article series, “The 5 U’s of No Deal,” why Owner’s go straight to “no deal.”

To recap, here are the reasons:

1. Unprepared to have the conversation and caught off guard
2. Unsure of the Business’ value
3. Unsettled about confidentiality, i.e. what if the employees or customers find out there’s an offer on the table?
4. Uncertainty about future employment
5. Understaffed and not enough time

I can’t help but start the conversation regarding Business Owner preparation with the buzzword, that Small Business adviser’s, including myself, often use: planning. Every time, I sit down with an Owner interested to explore selling their Business, I ask the question, “what percentage of Small Businesses on the market end up selling?” Unfortunately to date, no one has answered correctly…
Estimates from the Exit Planning Institute (EPI) and the BizBuySell marketplace indicate the answer to be 20%. Most would-be Sellers are shocked by the statistic, but I find that it helps shift the tone of the conversation towards the time and energy commitment required to achieve liquidity and the desired exit (How can we be 20%ers?). With a clear and reasonable liquidity goal and knowledge that there’s much work ahead, the would-be Seller is more likely to put in the time, sacrifice and attention to detail to get the job done.

Several CPA’s have told me they expect 50%+ of Business Owner’s to file an extension on their corporate taxes each year. Due in part to finding credits and deductions to help reduce taxes and manage cash flow- of course. But, no doubt a lot of Owner’s file an extension simply to “kick the can down the road,” similar to Doctoral candidate waiting until Spring to start writing a thesis. Here’s the point: preparing and filing personal and corporate taxes is one of the few absolute “must do’s” for an Owner. And even taxes get pushed off until later. But selling a Small Business isn’t a required task, that if left undone would result in a penalty or visit from the IRS. It boils down to the Owner’s effectiveness at the important, non-urgent tasks, coined by Stephen Covey in “The 7 Habits of Highly Effective People.” It’s a must read. The 4-quadrant chart below displays different tasks, with the tasks from Quadrant 2 being the greatest indicator of potential success or failure in the preparedness of an Owner considering opportunities to exit the Business. As an M&A professional, I can’t think of two more important things for Business to ensure a successful transaction: clean tax returns and an Owner that has invested in important, non-urgent planning.

Two final points:

1. I’ve met with numerous Owner’s that appear too busy running the Business to take my phone call or respond to an email in 24 hours (more to come in the fifth article “Understaffed and not enough time”), but it ought to be reiterated. If a Business Owner you know fits into the too busy or unresponsive category, there is little to no chance of getting lucky or slipping into the top 20% that are fortunate enough to exit their Business with a check in their pocket. Without appropriate planning and expectations, Buyer’s won’t bite.

2. How Should Owner’s prepare for a knock on the door from a potential Buyer or starting point for an exit by sale? Ask a trusted Business adviser for a referral to someone experienced in the Mergers & Acquisitions market to discuss laying the foundation of the sales process. Together with an Owner’s CPA and attorney, an M&A professional can help shed light on the market, industry comparables, non-disclosure strategies, and all other aspects of a Business sale to help maximize success.

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                About the Author: Paul Fackler
Paul Fackler

Phone: (704) 895-4274 x205

Office Fax: (704) 895-4278

Cell Phone: (704) 557-6862

Email: pfackler@thecbagroup.com


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