The Miserable M’s – For Buyers and Sellers of SMBs (Antidotes Prescribed)

M is for Miserable. It doesn't have to be that way.

You may not want to do it, but you can consider these M’s now.

Or you can cope with them later.

“There are many buyers, sellers, and advisors who don’t make the same mistakes twice.

They do it more than that.”

The Miserable M’s

(In alphabetical order, for no apparent reason.)

(Expect this evolving article to change on the basis of new insights.)

Misallocations

Inappropriate, improper, fraudulent, ignorance.

Correctness is better.

Misallocations can arise when buyers and sellers don’t know how to optimize their use of their resources, such as money and know-how.

Pay attention to the allocation of your sale/purchase price for tax purposes.

Apportion value/price for the elements of your deal: real estate, assets, shares, goodwill, etc.

What about: seller financing, IRC Section 1031 Exchanges, installment sales, and other kinds of creative financing?

Don't waste time and money on resources, people, advisors, processes and proposals that don't deliver sufficient value.

Where is the highest and best use of your time and money? How do you exploit it? (Get a second opinion.)

Sellers also misallocate when they don’t optimize their pitch to buyers. And waste time and money on searchers that are not going to buy the business.

Buyers do it by misallocating their resources while searching for businesses to buy. Another way buyers misallocate is by paying attention to opportunities when there are better opportunities available.

Antidote: better-understand what you bring to the dealmaking table.

• What is it you’re willing to give to get what you want, and how are you going to express it in an appealing way?
• Look for feasibility and efficiency.
• Don’t misallocate your attention by paying attention to people who don’t know what they’re doing, especially other people trying to buy or sell businesses.
• Look to people who have successfully done what you want to do.
• Ignore everybody who’s trying to figure out what works.
• Prepare and implement a winning plan to market what you’re selling, which will get you what you want.
• Collaborate with people; nobody likes confrontation.
• Have you adequately assessed your strengths and weaknesses?

Don’t pause search!

“By working faithfully eight hours a day you may eventually get to be boss

and work twelve hours a day.”

―Robert Frost

?

Miscalculations

Misjudgment, mistake, overestimate, underestimate.

Getting the valuation wrong might be the most dangerous miscalculation. And so is miscalculating what’s ahead for the business.

Sellers do it by pricing their company for sale outside the reasonable range of value. Another way they do it is prematurely bringing their company to market.

Buyers do it by making offers outside the reasonable range of value. And, when they don’t propose the right kind of deal structure.

Antidote: don’t venture onto the buy/sell playing field until you have a reasonable understanding of how your particular kind of business is valued, and the ranges of prices buyers are paying.

• Get the right support and guidance.
• Don’t be a do-it-yourselfer, unless you’ve successfully bought and sold several companies, and, of course, you have the right advisory team.

Tips: be sure to adjust for anomalies, like the pandemic and recessions, and other extraordinary situations.

• Save money for emergencies, to pay for downsides.
• Don’t speculate.
• Don’t miscalculate how long it will take you to achieve your target return on investment, and the return of your investment.
• Beware of insufficient research.
• Are you paying enough attention to knowing and tracking KPIs while you navigate through search and dealmaking?

Don’t cling to your buying or selling plan if it’s not immediately taking you toward where you want to end up.

“Some people calculate their risk.

Some people aren’t good at math.”

Mischiefs

Misbehavior, troublemaking, and even nonsense.

Sellers do it when they present buyers with a nonsensical business offering profile, or when the seller’s representatives begin communications with hyperbole.

Buyers do it, usually during search, when they disrespect sellers or business brokers. And it gets worse, during due diligence, when they go outside bounds of reasonability, such as inappropriately interacting with C.E.L.B.S. ? (my acronym).

• To what degree can you reasonably expect to match or surpass the quality of the seller’s business relationships with the company’s customers, employees, landlord, bank and suppliers?

?Antidote: don’t do it.

• Don’t misbehave.

But do identify vulnerabilities, and then act accordingly.

“Some people remember everything you say

and how you make them feel.”

?

Miseries

Distress, discomfort, and even torment.

Sellers do it when they brandish buyer competition to their field of potential buyers.

Buyers do it when their demands torment sellers and brokers.

Antidote: pretend you’re on a lifeboat, in rough seas with no rescue in sight, with whomever is at your dealmaking table.

• Keep track of everything, because it’s easy to forget or not be able to find what you need, so you can do what you need to do.

Virtual data rooms can be useful to store and manage information and plans.

“Misery is almost always the result of thinking.”

?

Misinterpretations

Getting it wrong, misunderstanding and even misapprehension.

Sellers do it when they don’t realize offers from buyers are an opening for conversations about what it’s going to take to make a deal.

Buyers do it when they unreasonably worry about phantom problems.

Antidote: don’t let shortsightedness, or your imagination, fool you.

• Pay more attention to after-tax cash flow than to profit or loss.

Superficial is not deep enough.

“Misinterpretations are a communicable disease.”

?

Misrepresentations

Giving a false or misleading account of something.

Deceit, fabrication, and even exaggeration.

Sellers shoot themselves in their feet when their offering prospectus repels buyers. And if the CIM doesn’t, their nonsense appears later, during due diligence and negotiations.

Buyers do it when they don’t know enough about due diligence and dealmaking.

Antidote: it’s a best practice to assemble the right kind of dealmaking advisory teams before sellers offer their business for sale, and before buyers begin due diligence.

• Have practical recourse you can promptly deploy to go against whomever takes advantage of you.

Here’s my story of a bad deal that became a sweet deal for me thanks to knowing how to obtain recourse against the nogoodniks that cheated me. My Oh-So-Humiliating Business Acquisition Disaster Story.

“Great is the power of steady misrepresentation.”

Missteps

A clumsy or badly judged thought or action.

Sellers do it when they excessively play hard-to-get. Or when they don’t directly appeal to each kind of buyer.

Buyers do it when they speak without knowing how what they say will affect whomever they’re trying to influence. And when they buy potential instead of reality.

Antidote: slow down to go fast.

• Think carefully before you do it or say it.
• Don’t waste time or money on low ROI issues.
• Have enough working capital.
• Work from realistic plans, which cover the best, worst, and probable scenarios.
• Concession Avenue is a two-way road.

Don’t fall for the sunk cost fallacy: it’s tempting to complete a deal simply because you don’t want to go through the process again.

“One stupid misstep can change everything

for the worse.”

Mistakes

Doing something misguided or wrong.

This is the fun part of selling and buying businesses.

Mistakes are normal.

It’s the sellers’ errors, blunders, and even misconceptions, when it comes to understanding what they’re up against when trying to sell their business. Too many sellers don’t effectively delegate, which can cause them to take their eyes off the prizes, whether it’s managing their company or trying to sell it.

Errors of omission cost buyers. Doing what you love the right way but messing up what you don’t like to do. Financial people can be blindsided by the non-financials. Sales and marketing people can miss financial misdirection. Skimping on due diligence and business planning is a popular way buyers fail.

Antidote: recognize mistakes and then create workarounds.

• Avoid 2020 hindsight. It’s more likely to end up in a crash than avoidance.
• Don’t let the company’s vulnerabilities dangerously cloud its opportunities.
• There are wonderful opportunities in businesses with fixable problems.
• And in troubled industries, if you own or buy one of the long-standing winners.
• Willfully ignoring your competition is a good way to lose.

Beware of a fatal case of Business Buyer Fever (a condition I coined), which can happen if you suspend your common sense.

"We made too many wrong mistakes.”

―Yogi Berra

Misunderstandings

Misunderstandings lead to disagreements.

Sellers do it when they don’t probe deeply enough to understand the rationale for offers received from buyers.

Buyers do it when they don’t probe deeply enough to understand the sellers’ rationale.

Antidote: don’t express vague or ambiguous information or direction.

• Ask definitive questions and get explicit responses.

Don’t focus too much on the numbers instead of the people.

“Don’t waste your time trying to explain

to people committed to misunderstanding you.”

Missed Opportunities

(Maybe the biggest error of all.)

Do you see, and are you going to take advantage of, in the company you own or want to buy, all the opportunities to increase its cash flow and its valuation? My clients have been substantially increasing value using some of these 120 tactics.

"Opportunities are like sunrises.

If you wait too long, you miss them."

―William Arthur Ward

Miscellaneous

Everything else that doesn’t necessarily spell out beginning with an “M.”

Sellers who don’t maximize the number of qualified potential buyers.

Buyer competition. It’s not the friend of searchers.

Antidote: know how to avoid or beat your competition, to be the first choice.

• Never forget the importance of the likability factor.
• Pay at least as much attention to marketing as you do to finance. Numbers don’t lie. People do.
• What’s your unique selling proposition?

What’s the value you’re willing to exchange? How do you express it? When? What’s your result?

Miscellaneous is always

the largest category.

―Joel Rosenberg

Let’s close with this tip: whenever you’re doubtful or facing problems, remember why you decided to sell or buy a business. And how your successful transaction will improve your life.

And remember: the road to Easy Street is goes through dangerous areas.

Let’s Zoom to talk about it.

Here’s some of what I can bring to your side of the dealmaking table if you include me on your advisory team:

I’m The Original Business Buyer Advocate ?. I'm not a business broker; never have been.

For more than 30 years, over 100,000 entrepreneurs and advisors, worldwide, have relied upon my books and trainings to creatively finance, buy, or sell small and midsize businesses. I've privately coached more than 1,000 clients. And, I've trained 298 independent advisors, so they can better-serve people buying and selling businesses.

• But I can’t unscramble eggs, so let’s collaborate before things get messy for you.

This is the first valuable deliverable I provide for people wanting to find and buy the right businesses the right ways: Targeting the best opportunities and then finding them.

It comes down to this: How good or bad do you want your experience to be when buying or selling a business (or when you advise your clients)?

• To know (enough) or not to know??That is the question.

Read my book: How to Buy the Right Business the Right Way—Dos, Don’ts & Profit Strategies.

Ted J. Leverette

The Original Business Buyer Advocate ?

“Partner" On-Call Network, LLC

North Palm Beach, FL

LinkedIn

partneroncall.com