Three Errors Caused by Inexperience

A lack of experience can dismantle your deal. The following scenario helps to illustrate three errors caused by inexperience.

A business owner, nearing retirement, owns a retail operation that is doing several million in annual sales. After interviewing an experienced and well-respected intermediary, he is impressed. However, the business owner has a niece who has recently received her MBA. She has told her uncle that she can handle the sale of his business and save him a lot of money.

Let’s take a look at a few problems that arose with our business owner and his inexperienced niece.

Error #1 No Confidentiality Agreements

The business owner and his niece do not use confidentiality agreements with prospective buyers. As a result, competitors, employees, suppliers and customers all learn about the sale of the business. Learning that the business is for sale could cause a range of problems. Ultimately, this could damage the sale of the business.

Error #2 Incorrect Financials

The inexperienced MBA did not prepare an offering memorandum. She compiled some financials that were not audited. The financials failed to include several hundred thousand dollars the owner took. He forgot to tell his niece this information. This mishap affected the numbers. This lack of information would likely result in lower offers or even decrease prospective buyer interest.

Error #3 Failing to Include the CFO

Another key mistake in this scenario was a failure to bring in the CFO. The niece felt that she could handle the financial details. The business owner and the niece failed to realize that prospective buyers would want to meet with their CFO. The CFO should be involved in the due diligence process. Not bringing the CFO on board early, complicated the process.

Selling a business is far too important for an amateur. You want an experienced business broker with a great track record. There is no replacing experience.


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