Common Seller Pitfalls in a Transaction
The following is a list of common mistakes made by private school owners attempting to sell by themselves:
Lack of Preparation
There is perhaps nothing that can kill a deal faster than disorganization and lack of preparation. Far too often, school leaders get way ahead of themselves in an effort to seal the deal when they just were not ready to take that leap. A great deal of consideration and planning must take place prior to entering into the negotiation of deal terms. The leaders have to take a critical look at the business’s activities, finances, and projections if they want to speak with buyers intelligently and from a position of power.
Jumping at the First Offer
To be happy with the outcome of a sale and increase the chances of it succeeding, it is important to pursue the right opportunity and not just the first one that happens to present itself. A successful deal will occur if the company that is up for sale has made itself highly desirable. This means that operations, finances, and growth potential must be on point in every way possible, as this will lure buyers and foster healthy competition, driving up the price and improving the prospective terms.
Neglecting Timelines
Time is often the slow, silent but inevitable deal killer. Deadlines that are overlooked or timeframes that require constant adjustments and delays can easily dissuade a buyer from continuing to move forward. Time is of the essence in virtually every transaction, and with an acquisition, wasted time usually means wasted money. This is once again where planning, preparation, and organization will prove critical to keeping things moving along.
Losing Sight of Operations
Sometimes school leaders get so bogged down in the sales process that they forget to run the school business that they are seeking to sell. This may result in certain disruptions, lost enrollment, and declines in revenue. Any of these changes will impact the value of the company and thus could end up influencing the final numbers. Someone on the team has to keep a strong hold on the reins to avoid ruining the deal altogether.
Maintaining Confidentiality
The M&A process requires an extensive amount of due diligence and evaluation from the Buyer. The last thing you want is your parents or staff becoming aware of a transaction early in the process. Having a well-drafted non-disclosure agreement (NDA) and process to maintain confidentiality throughout the transaction is crucial to protect propriety company information – and ‘well-drafted’ here means that it includes specific M&A-related protections for the seller.
Quality of Provided Financial Data
Jumbled financial statements cultivate fears of unpredictable performance and enable the buyer to angle for a discount. Organized and well-prepared financial statements confirm financial accuracy and help validate forecasted performance. Lack of clarity and visibility regarding key business drivers, sales pipeline backlogs, back office operations, and the consistency of growth and earnings inhibit a buyer’s enthusiasm to continue its due diligence.
Post-Closing Liability Exposure
As a Seller, you want to make sure the funds that hit your account at closing STAY in your account. The definitive documentation lays out the binding nature of the sale agreement. In some cases, the Seller and Seller’s attorney overlook certain terms and conditions in the representations and warranties that leave undue liability for the Seller. The last thing a Seller wants is giving a Buyer recourse to recoup monies after the transaction especially if the Seller agreed to hold back a large amount of the purchase price or sign personal guarantees.