Hi ,
Thought I’d share some Q&A from yesterday’s story about John.
Q. As a business owner, I’m curious about the mistakes John made with his financial records and tax filings. Can you give me more examples of his mistakes and how it hurt his chances to sell?
A: John tried to save money by hiring a cheap bookkeeper, who unfortunately made key mistakes in his financial records and tax filings – especially by not keeping up to date on the latest regulations. Not only did John miss important tax filings, but the buyer discovered other inconsistencies in his financials. John’s credibility was shot, so the buyer pulled out of the deal, and John missed out on a great opportunity.
Q: I’m interested in learning more about due diligence and how I can better prepare for it. What are some common mistakes I can avoid?
A: One of the most common mistakes is not being proactive and preparing adequately for due diligence. Creating a data room and keeping everything updated in it is something you can start today. But sad to say, most owners will ignore this advice. So they often fall behind on the necessary financial records or tax filings. Even worse is when they struggle to answer direct and detailed questions about their business operations.
So keep all your records accurate and up-to-date, (financial, contracts, employee, etc) and make sure you prepare and can answer detailed questions about your business operations.
Q: I’m curious about how John’s mistakes impacted his relationship with the buyer. Was there any way that he could have salvaged the deal after his mistakes were discovered?
A: John’s mistakes were significant. The buyer lost trust in John’s competence and truthfulness. The mistakes pretty much sabotaged the relationship and the buyer ultimately pulled out of the deal.
It’s possible that John could have salvaged the deal had he been better prepared and fixed the issues promptly. However, his vague answers to direct questions undermined his credibility and the buyer walked away.
Q: As a business owner, I’m curious about how I can avoid making the same mistakes as John. What are some key takeaways from his experience that I can apply to my own business?
A: Preparation. Whether it’s financial record keeping, tax filing, supplier contracts, etc. ensure they are professional and up to date. Don’t cut corners. Pay for competent professionals when it comes to accounting.
Additionally, always be prepared for a sale. Have a data room ready to go if an opportunity should come knocking.
Finally be transparent and forthcoming about any mistakes or issues that may arise. Let them know the bad news.. don’t hide it or hope they don’t notice.
They will…
If you have any questions, feel free to reach out to me..