Mergers and acquisitions (M&A) brokers should be effective in educating their seller clients about the deal process and what to think about before shopping a company to potential buyers. There can be no greater mistake than not investing sufficient time reviewing the detailed accounting records of a seller to ensure the data has integrity and financial statements properly allow for a reviewer to determine and analyze the size of customers, retention rates, gross profit margins and revenue types being booked. A potential buyer isn’t likely to make an offer based on a simple gross revenue number, as many seem to believe. Unfortunately, every dollar of revenue in the income statement isn’t the same as any other dollar of revenue for purposes of determining an appropriate sales price for the enterprise.
Accordingly, pulling the trigger can backfire on a business broker and seller if a buyer has expressed interest and is ready to evaluate the financial and operational information immediately. Nothing chills a deal like telling a seller you have one or more suitors, but financial and operational statements need to be prepared and updated to answer the questions that should have been anticipated already. Failure to prepare for these factors can result in lost opportunities for the seller and business broker.