Exiting a business can be a dream come true for entrepreneurs, but many are unaware of the pitfalls and mistakes that can easily ruin their chances of finding a successful deal. On this episode of The Roadmap, host Lee Heisman is joined by Marvin Willis, partner of Smith + Howard, a CPA and advising firm based in Georgia, to discuss common mistakes small business owners make when preparing to sell their company.
Willis’ career began as an auditor, but his wife soon encouraged him to go into accounting. After entering the industry, he soon realized how difficult it was. Every two years, he would join a new failing business, help the leadership turn things around, and find another company in trouble. His breakthrough came when Smith + Howard offered him a position. Although he originally declined the offer, Willis is now a partner at the company and helps entrepreneurs buy and sell their businesses. “That’s really what my arm of the firm does,” he explains. “We actually go out and help entrepreneurial people build their businesses.”
For business owners looking to make their exit, Willis has several pieces of sage advice. “If you’re looking at a transaction, no matter when that transaction is, you need to build your back office; you need to build the financial reliability and accuracy for your data,” he remarks. “Clearly, entrepreneurs, for the most part, don’t think about that; they’re looking at the next deal, the next opportunity.” While such individuals can make his work more difficult, Willis’ expertise allows him to keep his clients organized, focused and prepared for the future. “Really, what we’re asking our business to do, is let’s think about a transaction before a transaction occurs.”
Willis discusses the most common mistakes entrepreneurs make on the road toward completing their exit strategy. Many small business owners are unwilling to entertain conversations related to selling their company. This, he notes, not only leads to lost opportunities down the road but also burns bridges with potentially valuable clients. Other entrepreneurs, Willis explains, often fail to know the actual value they need to obtain by selling their enterprise. “I’ve got several owners that have gone through two or three LOIs (Letters of Intent) before we actually sat down and said, ‘Ok, with all of your personal lifestyle running through the company, if we were to take that out that would go away with the sale of the company, what really is that aftertax number that you need?'” Many business owners, especially those who rely on their company’s revenue for personal purchases, make the critical mistake of underestimating their financial independence and end up losing a necessary source of income by undervaluing their brand. Willis also notes that a lack of proper bookkeeping or documentation can have disastrous results for a business down the line and can ultimately scare away potential buyers.
To keep deals from falling apart, Willis urges entrepreneurs to consider working with a CPA or other accounting expert. Doing so will ensure that small business owners get paid full price for their company and allow them to develop their exit strategies with confidence.