Looking to Sell Your Business? Stop Making These Mistakes

Most of us love our pets.

The pet industry is booming in America, with services like dog walking and pet sitting really taking off. There’s also no shortage of extremely niche pet products out there today (Bacon-flavored bubbles, anyone?).

There’s nothing like spending your time with your dog, going for walks, or hitting up pet-friendly coffee shops or bars. Things are increasingly becoming more pet-friendly, and animals and their pet-loving human counterparts, are lapping it up!

Currently, I’m in the market to buy a pet business with a close friend of mine. Why? Well, I wanted something that was in a niche that I’m actually interested in. Animals are something I’m passionate about, and I thought it’d be a good idea to get involved with something that’ll be able to really hold my interest.

This is my pup Nick.

He’s 16 now and having a hard time seeing and hearing, but he’s still living the good life.

Over the past few months, I’ve looked at dozens of pet businesses. And I’m starting to notice some commonalities among many of them; things that really stand out. But not in a good way.

It seems that while most of the businesses I’ve seen are more than willing to share generous projections and highlight all of the positive aspects of their company, they’re less happy to provide solid, fact-based figures. There’s a lot of exaggerations, variables, inaccuracies, or downright problematic issues –all dressed up as something positive. I’ve had a hard time finding a good, solid business that’s been valued correctly. (I guess you could say it’s been ruff!)

Sure, we all want our company to look its best, but there’s a fine line between helping to position your business as a strong contender and straight-up exaggerating.

As someone who’s been on both sides of the fence, having sold my company two years ago –and now, looking to acquire another one, I’m the first to admit that the merger and acquisition (M&A) process is filled with challenges, and can be difficult to navigate.

This is especially true if it’s your first time. It’s easy to make mistakes and miscalculations, that while they may have the benefit of making your company look good on paper –they can also cast a shadow over you. When a buyer evaluates the numbers –and looks more closely, they’ll be able to see the exaggerations that are propping the figures up –and they’ll instantly recognize the problems. This could result in a less favorable price or terms –or kill the deal entirely.

Sellers take note: if you want your company to attract genuine interest from buyers, you’re going to need some solid figures to back up your valuation.

To show you what I mean, here’s a look at some problems that I’ve encountered while trying to find a pet business.

The M&A Process: Mistakes to Avoid

• Using the Launch Model

During the startup phase, growth can be rapid and dramatic –especially if you’ve had funding. But that doesn’t mean you should include that figure in your growth projections. Once a buyer realizes what’s happening, they’ll be less optimistic about the whole deal. Instead of operating in startup mode, and including your initial round of VC funding in your future projections, it’s far more accurate to leave those numbers out.

• Adding Add-Backs That Would Normally Not Be Factored In

Shared resources are another issue that I’ve seen a lot of lately. While there’s nothing wrong with pooling resources or employees with another company, the problem is that too many companies try to then claim the full amount as an add-back. When claiming shared resources as an add-back, remember to use half the amount; or however much your portion is.

• Relying On Single-Channel Traffic Sources

Relying too heavily on one traffic source is another common mistake. For many pet businesses, their primary source of traffic is Amazon. But relying on one source for traffic can be risky. Before you sell, it’s a good idea to look to diversify your traffic as much as possible. It’s a lot safer long-term, and it’ll to help make your company more attractive to potential buyers.

• Making Inaccurate Financial Projections

Another common problem that I’m seeing is inaccurate projections. Accrual accounting is a common form of accounting for businesses –and for mergers, it’s often used as well. The accrual method of accounting involves recognizing revenue when it’s earned and expenses when they are billed. The problem though is that companies will often project out the next six months using the same numbers as the previous six months on top of using the accrual accounting method. This means that the future six-month period could be inaccurate, especially if, say, there were a number of expenses that were delayed and therefore didn’t make it into the time period.

• Poorly Negotiated Terms On Receivables

What’s your inventory situation like? If you haven’t worked to secure a better deal from your suppliers, you could be leaving money on the table. Negotiating a better deal on stock is a fast way to boost your profit margin, and is a simple way to make your company’s numbers genuinely more attractive to a potential buyer. Often, vendors are willing to offer discounts for things like recurring orders or bulk purchases, so work to secure the best deal possible.

• Creating a Business Model That Doesn’t Transfer Easily

Finally, a classic mistake that doesn’t involve financials, but it’s worth mentioning anyway: creating a model that doesn’t transfer easily. All too often, business owners create systems that are built around their way of running things. Then when they’ve scaled their business and are thinking about selling, it can be tough to rebuild systems that aren’t contingent on them being there holding everything together. When growing your business, look to create systems that are interchangeable –that anyone can use. Likewise, try to get a good system in place for record-keeping. Ideally, you’ll want to start compiling due diligence materials –and financial records, as soon as you determine to sell the company.

When it comes to selling your company, it’s easy to exaggerate your financial standing or conversely, to make mistakes that could mean you’re leaving money on the table. The good news, though, is that most of these common mistakes are things can be rectified easily enough. If it’s your first time going through an M&A, or if you’d like to help make the process then don’t hesitate to bring in the experts to help. Having a good investment banker or financial advisor who’s experienced in M&As can help you to get your business on solid footing, and buy-ready as quickly and efficiently as possible.

Now, I’m back to my search. Here’s hoping for a paw-sitive outcome!

Sellers –are you making any of these mistakes yourself? And buyers, what consistencies have you found in businesses for sale? I want to hear your thoughts!