The Top 5 Mistakes HVAC Owners Make When Selling Their Companies
By Fred Silberstein, CPA
Selling your company is about as complicated a process as it sounds: There are more pieces of paper than a Tolstoy novel, more moving parts than a Swiss watch and more opportunity for error than you ever thought possible. Of course, most errors are minor and won’t have much impact on the final transaction. However, some can be significant enough to either kill the deal completely or cost you significantly on the sale price.
As an HVAC acquisitions specialist with 150+ transactions to my name, I’ve had the opportunity – or maybe I should say ‘misfortune’ – to see owners make an incredible range of those mistakes. Cataloging them all would be an impossible task, but here are the 5 most common ones that actual sellers make all the time:
1. Not determining the fair market value for your business. Sellers will often entertain offers from buyers without having any real understanding of the value of their enterprise. And if they don’t know how much their business is worth, there’s a very good chance they’re going to wind up selling it below value. Remember: even one percent of a million dollar purchase translates into $10,000 – and I can’t think of a single person who would turn me down if I offered to put an extra $10,000 in their pocket right now.
Just as dangerous – and even more common – are owners who have unrealistic expectations of their business’s value. We all want our businesses to be worth incredible sums, but it’s the market that sets the true value, and if the market says you’re worth less, you have to accept the facts of the matter. If you don’t like the price that the market is bearing today, your best bet may be to wait for the situation to improve.
2. Talking Yourself Out Of A Deal. Remember the old phrase from WWI about how loose lips sink ships? It’s true in war and it’s true in business, too. The fact is, one of the worst mistakes a seller can make is to let others know his or her true intentions.
Remember: Your business is successful not only because of what you do, but because of what all your employees do. And if they find out that your company is for sale, you could be putting their loyalty, their motivation and their ability to continue making you successful in jeopardy.
The last thing you need when you’re trying to sell your company is a staff of employees who are concerned about their jobs, wondering about the future and spending their time combing through the help wanted section of Craig’s List. Keep as quiet as possible, remember that office walls have ears, and make sure all your conversations are private and confidential.
3. Going it alone. You’ve heard the saying about people who represent themselves in court having fools for clients. Something similar could be said about those who try to sell their businesses on their own.
No, they’re not fools – in fact, they’re often very smart businesspeople who are simply averse to paying someone to do work they believe they can do on their own. The problem is, it’s the rare owner who understands the intricacies of the process well enough to actually come out ahead.
The fact is, deals are among the most complex transactions you’re likely to be a part of in your entire lifetime, and trying to navigate through things without assistance makes about as much sense as having your CPA change out a furnace.
Consider, instead, surrounding yourself with a team of experts who understand the complexities of the deal, from taxes to legal indemnification to valuation and beyond; they’re almost certainly going to get a better sale price for you – far more than you would have saved by trying to work the deal alone.
4. Taking your eye off the ball. Speaking of leveraging professional help, there’s another reason why it makes sense to enlist the assistance of others: The sales process can be exceptionally distracting. Sellers who tried it for themselves have told me time and again that they had no idea just how much effort went into the process – they would literally spend days and nights for months at a time looking through spreadsheets and teaching themselves the finer points of contract law.
All of that effort only took them away from doing what they do best: Running their businesses. If you damage your company through neglect because you’re too busy trying to sell it, that damage will be reflected directly in the sale price. Instead, try to maximize your corporate value by letting specialists handle the transaction while you focus on operations. And if you’re really on the ball, what you’ll want to concentrate on during this time is developing bench strength. That is, training your key employees to move up a step and take vacated positions that may occur either by design or through attrition once the sale is complete.
5. Only looking at the sale price. Sure, the sale price is the big, sexy number that everybody looks at – but if you don’t give the terms of your agreement the same attention you gave the price, you could be setting yourself up to take home far less than you might have realized. The representations you’ve made, the warranties that you’ve offered, the claw backs that are written in – all of these are in there for a reason, and that reason is often to protect the buyer’s interests.
And that’s just the beginning – you’ll also want to determine if the purchase price is paid up front, if debt is secure, what interest rate will be paid and much more.
Like I’ve said, it’s a complicated process, and if you’ve never been through it before – and even if you have – it’s easy to find yourself making mistakes. Approach the process with the respect it deserves, line up support to help you though it, and try to maintain a positive attitude through it all and you’re likely to have the best experience possible.