Mergers & Acquisitions For Dummies, 2nd Edition

Chapter 20

Ten Lurking Problems for Sellers

IN THIS CHAPTER

Highlighting areas that sellers often overlook

Making sure sellers are fully prepared for the sale process

Valuation is always the million-dollar question — well, it’s often the multimillion-dollar question. The stereotypical negotiation impasse has the seller asking for a high price and the buyer offering a low price, with each side digging in their heels and insisting that the other side capitulate to their demands. But that strategy rarely results in a closed deal.

In the spirit of getting deals done, in this chapter I provide a few ideas on ways buyers and sellers can settle valuation disagreements and move forward to the closing.

Let’s assume the company is performing well and is profitable and growing. Great! That’s a big part of the equation.

Quality of Earnings and Inventory

I always consider the quality of a company’s earnings and the status of its inventory as the twin focus of buyers. Business owners are wise to plan accordingly. When I say quality of earnings, I’m not referring to the report of the same name (see Chapter 7), but rather the condition of the profits of a company. The report helps quantify those earnings.

A buyer will pore through a seller’s general ledger, wanting to confirm that all inventory ...