• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to secondary sidebar
  • Skip to footer

Scale FinanceScale Finance Logo, Interim CFO, Part Time CFO Services, Accounting Support, Temporary CFO, Accounting Bookkeeping Services

Interim CFO, Part Time CFO Services, Accounting Support, Temporary CFO, Accounting Bookkeeping Services

Charlotte · Raleigh – Durham · Chapel Hill · Triad · Southern Pines · Coastal Carolina
Closing the GAAP to Scale Your Business
The FINACA Logo
919-230-4667
Scale Finance, LLC, Financing, North Myrtle Beach, SC
  • Home
  • Services
    • CFO & Controller Services
    • Capital Raise Services
    • Business Valuations
    • Mergers & Acquisitions
    • Professional Consultations at No Cost
  • Professionals
    • Partners
    • Charlotte Team
    • Raleigh – Durham – Chapel Hill Team
    • Greensboro-Southern Pines
    • Coastal Carolina Team
  • Client Experience
    • Closed Capital Raise Transactions
    • Closed M&A Transactions
    • Client Endorsements
    • Information Technology
    • Healthcare, Biopharma & Medical Device
    • Services, Energy, Industrial
    • Consumer, Retail, Media
    • Real Estate
    • Private Equity Groups
  • Recent News
  • Knowledge Bank
    • Best Practices in Scaling Companies
    • Entrepreneurial Management Skill- Building
    • Financial Management
    • Mergers & Acquisitions
    • Regulatory Developments
    • Venture Capital
  • Contact Us
    • Charlotte
    • Raleigh – Durham – Chapel Hill
    • Triad – Southern Pines
    • Coastal Carolina
  • Joining Our Firm

7 Success Drivers Between Signing LOI and Closing the Sale of Your Company


Source: Mason Myers, General Partner, Greybull Stewardship

When selling your business, reaching the letter of intent (LOI) stage is a great indicator of success. But, the process is far from over. There are many steps that still lay ahead that can derail or ruin the transaction. Below are 7 pitfalls to be aware of between the LOI and the closing of the transaction:

1. First, get the letter of intent done well, and read all the legal details.

The first step to moving from letter of intent to closing is to make sure that everyone understands all elements of the letter of intent, and that the letter of intent has a reasonable amount of detail.  Misunderstandings and miscommunications will blow-up a deal very quickly if the parties have different interpretations of the terms.

In the midst of negotiation, it may be tempting to leave a detail for later, or hope the other party didn’t notice some important detail, or leave an open item to later.  There is no one way to do things, but if you truly want the deal to happen, I have had much more success taking the extra time to explain a term or go over something again to make sure that everyone is on the same page.  The LOI sets the pace for the rest of the process, so it is important to do it well.

2. Keep the business on budget and performing well.

Ensuring that the business remains on track is critical during the process from LOI to closing. Although it may take a great deal of focus to close the deal, keeping the business running according to plan is necessary for the transaction. This is the most important, of many things, to balance during the closing process. Among private equity buyers, you will hear wisdom shared from investor to investor with things such as, “95% of all bad deals were off budget during the closing process.”  The buyer will be watching every twitch of the business with extreme scrutiny.  To a buyer, there is nothing more comforting than seeing the financial results come in as expected.  Even better for everyone is having the financial results come in ahead of budget.  Yes, this is true even when you are the seller wondering if you could have gotten more for your business because it makes the buyer want to close the transaction even more and maybe some small horse trade will go your way in the end (and, there is always one more horse trade).

When the financial results are not on target, it forces the buyer to spend time and energy trying to figure out if the miss is a short-term blip or something more fundamental.  Better to avoid having the buyer to think twice about anything.

Most deals require the seller to operate the business as usual during the closing process.  This should be obvious and intuitive to all involved.  However, I have seen sellers try to be clever and change some aspect of the business during the last months or weeks to try and tweak the deal to be more favorable to them.  This never works.  First, it is counter to the spirit of the deal to keep operating the business as normal, and it’s very difficult to change any reasonable size organization from their normal operations without creating problems, both intended and unintended.  Furthermore, it is in the seller’s interest to keep the business operating normally just in case the transaction does not close. It is a fact of life that not all deals close after a signed letter of intent.  The seller needs to be aware of this and not make any adjustments that they would not make if they were not selling the business.  In particular, do not change a strategy to fit the buyer until after the close.

3. If something bad happens, inform the buyer immediately.

Business results are rarely perfect and on budget.  If something happens, the best policy is to be up-front and inform the buyer immediately, just as you would want to be informed if your roles were reversed.  If done well, this can increase the buyer’s confidence in the seller and the business. If done poorly, it can torpedo the transaction in a heart-beat.  In one recent situation where I was not directly involved, the seller lost several clients in late November that was going to reduce their revenue by >20% (probably only for a few months, but it wasn’t totally clear).  The seller did not tell the buyer until the December and January financial statements were ready, and it cratered the deal.  They may have had a chance to save the deal if they had been up-front immediately.  More importantly, they should have done everything in their power to keep those clients and keep the business on track (or presented more conservative financial forecasts that accounted for some potential lost clients).

4. Have scrubbed and analyzed your previously presented financial statements.

Most serious buyers will perform a “Quality of Earnings” accounting due diligence on your company.  This means that they will review, in detail, the financial statements that you have previously presented to make sure the earnings presented are high quality.  It is inevitable that they will find various adjustments that make the earnings a bit better and a bit worse than expected — that is normal.  However, it will save sellers a ton of time if they have performed their own analysis to find the unusual items or the items that the buyer may ask about.  It is much more efficient to be prepared up-front than to scramble around trying to understand the questions yourself and to explain what the buyer may be finding.

5. Be organized.

The buyer will need all sorts of information about the financial results, legal, insurance, human resources, major contracts, etc.  Of course, the seller wants the information to be strong and supportive of the picture that was painted during the sale process.  Almost equally as important is how the information is organized and presented.  Buyers appreciate indications that the company is well managed and organized — such indications provide more confidence to the buyer.

6. Manage the lawyers — don’t let them manage you.

The lawyers view their job as doing everything they can to protect you, so they will always take the most conservative path and recommend the most protected, conservative position.   There is nothing wrong with that, but if both parties take that same stance, there is no room to find a middle ground that makes sense.  The lawyers work for you — you should have the confidence to tell them what you want, make the final business decisions around the deal, and not let the lawyers manage you.  Finishing the Letter of Intent does not mean that all the deal decisions are done.  There are many more small details and decisions in the final documents, and both parties need to continue compromising and negotiating the details that are not covered in the Letter of Intent.

7. Communicate well with everyone involved.

Special effort needs to be made to communicate (probably more than you think) among all the parties.  And, special effort should be made to think about the best methods to communicate everything.  Never take a shortcut by firing off an email when a phone call would be better.  Everyone is on edge, and making sure to communicate enough — and via the best method possible — pays off big time.

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout North Carolina including Charlotte, Raleigh/Durham, Greensboro, and Southern Pines with a team of more than 45 professionals serving more than 120 companies throughout the region.

Primary Sidebar

Knowledge Bank

How to Handle a Bank’s Rejection of Your Loan Request

Accessing University IP – Negotiating Financial & Other Terms

Why VCs Sometimes Push Companies to Burn Cash Too Fast

7 Steps for New Business Owners

Basic Benefits of Starting a Business in North Carolina

Finance & Accounting 101 for New Small Company Owners

Accounting Fraud – Common Causes and How to Stop It

Why 80% of Court Judgments Go Uncollected

7 Steps for Early Stage Fundraising from a VC

Foreign Exchange Management Under Volatile Conditions

Lessons Learned from the EIDL / PPP Trenches

Cash Management Plan – 2020 Economic Crisis

Is Your CFO Any Good? 4 Point Checklist

What Happens When Deals Die

How to Handle a Bank’s Rejection of Your Loan Request

Susceptibility to Accounting Fraud for Medical Businesses

Bankruptcy Relief for Small Companies Coming Soon

New Rules for Overtime Pay take Effect January 2020

The 5 Worst Things You Can Say to a Venture Capitalist

Incentive Stock Options Versus Nonqualified Stock Options

Explore the Knowledge Bank…

Secondary Sidebar

Recent News

SF Client Impact Financial Systems (IFS) Acquired by iPipeline

Scale Finance Assists TrueLearn with Investment by LLR Partners

Scale Finance Assists Textum Weaving with Investment by Quad-C

Scale Finance Closes Debt Financing for Horizon Eye Care

Scale Finance Closes Acquisition of Horsepower Site Services by MCG Civil

Scale Finance Closes Growth Financing for Celerity

Scale Finance Advises on Acquisition of Reliant Transport

Scale Finance Closes $20 Million ABL Financing for TRA

SF Client TruPoint Partners Acquired by Ncontracts

Scale Finance Advises on Debt Financing for Alpha Waste Industries, Inc.

Scale Finance Closes $7M Senior Debt for Travel Resorts of America

Scale Finance Closes Acquisition of Raleigh Metal Recycling by Elite Waste Services

Scale Finance Advises on Debt Financing for Pediatric Advanced Therapy

Scale Finance Closes Growth Equity Investment for Better Car People LLC

Scale Finance Closes Sale of Cayden Security to SCE Group

SF Client EarthKind Secures Growth Investment

Scale Finance Advises AMTdirect on Strategic Growth Investment

More News…

Footer

Ask the CFO

Need a quick answer to a finance/accounting question?

Sending

Media

Scale Finance Managing Director Dave Gilroy interviewed on WSIC Radio (local Fox affiliate)

/wp-content/uploads/2014/02/David-Gilroy-Interview-Local-Biz-Now-2-7-14.mp3

Entrepreneurial Tips

  • Funding Tips from Scale Finance
  • CIE Life Sciences Panel Discussion
  • Why Use Fractional CFO Services

FINACA is a nationwide network of independent finance and accounting consulting firms focused on delivering exceptional client service.

FINACA is a nationwide network of independent finance and accounting consulting firms focused on delivering exceptional client service.

Sign Up—Finance Bulletin

Monthly insights into corporate finance for entrepreneurial companies

Sending

Return to top of page

Copyright © 2008–2021 Scale Finance, LLC
Securities and offering services through Charles Towne Securities, LLC. Members FINRA and SIPC.