Maintaining buyers' confidence is crucial in acquisitions, but recruitment company owners commonly make some critical mistakes that put buyers off, says M&A specialist Rod Hore.
One of the most common mistakes owners make in the lead-up to selling their business is not allowing enough time to get the company in shape, said Hore, who will give his tips for valuing recruitment companies in an upcoming webinar for Shortlist subscribers.
Preparation is crucial, because business adjustments during the actual transaction process will dampen buyer confidence, he said.
"Buyers have options – they don't have to buy your business. They can buy a different one, and if you're in a position where you're not gaining the confidence of the buyer then they may either offer a lower price, or go somewhere else."
Hore, who is a director of recruitment company advisory HHMC, told Shortlist: "Sellers should get some tax advice. They should think about their performance and efficiency – because everybody's got some underperforming activities, and they should even do things like tidying up their contractual aspects, such as employment contracts and loose details in client contracts."
Vendors also need to test their own assumptions about their business, which generally involves getting third-party advice.
"There are a whole bunch of assumptions that people have and mostly they're misconceptions about their business: what its market value might be, who the potential buyers might be, what those buyers are really seeing in an acquisition [and] what the likely deal structures are," he said.
"If you are not in a position to be able to either state your case clearly, or when people start investigating your business they find that things are slightly different to what you've said, that reduces buyer confidence."
External advice can also prompt owners to make adjustments to improve the value of their company, and help them pick the most opportune time to sell their business, said Hore.
Don't let the sales process distract you
A common mistake sellers making during the sales process itself is getting so caught up in the transaction that their business performance suffers, Hore told Shortlist.
"Again, it's about maintaining confidence with the potential buyer, and you need to hit your forecasts on the way through your sales process. It actually takes a lot of discipline to concentrate 110% on your business, and have this other activity going on at the same time," he said.
If owners get distracted and their business performance declines, it can diminish the company's value and might even require them to take the business off the market until they can rebuild it, said Hore.
Another common mistake sellers make is procrastinating or changing their mind during the sales process, which can damage their personal brand, he said.
"What people need to do is always protect their brand... Buyers want to be seen as organised and decisive, and [sellers] can damage their brand in the marketplace if they approach this in the wrong way," said Hore.
"If you enter into it you've got to be serious and you've got to just go through the process. Don't start it if you're not going to do it properly."
Rod's webinar is free for paid Shortlist subscribers to attend - click here to register. The 75-minute session will include roughly 30 minutes of Q&A, so don't miss your chance to get expert advice for free.