When it comes to selling your business, inaccuracy is one roadblock to avoid at all costs. Being accurate is one of the keys to any successful sale, as it demonstrates to buyers where your business has come from and where it is going. But, you may be wondering: How accurate do I need to be?
This question truly comes to the forefront when creating projections for your company’s future growth. Many business owners don’t appreciate this when selling their business.
Sure, you might have compiled the most in-depth and exciting historical numbers possible from the past 3-5 years. Revenue might have increased dramatically in this period, expenses greatly reduced and you expanded your customer base two-fold. This is all fundamental information that buyers will want to know.
But it’s only half the battle. To really grab a buyer’s attention, you should also provide 3-5 years’ worth of projections for future financial growth, starting from your base year. This is because buyers are focused on the future earnings potential of your company – the past was your time of success, and they want to know the next few years will be theirs.
However, and we cannot stress this enough, maintaining accuracy is critical for two big reasons:
Of course, we understand the temptation for sellers to overstate their potential to attract buyers. Our professionals at Generational Equity have seen many initial projections that blew historical numbers out of the water. This can lead to what is known as hockey stick projections:
"A hockey stick projection is one that shows its last few years of actual results flat, and then magically rockets up for future years just like the blade of a hockey stick. These forecasts usually show significant growth in revenues, EBITDA and EBITDA margins".
Most buyers will be dubious to say the least if your projections follow this trajectory. Maintaining trust is vital in cementing any business sale, and this approach will immediately strain your relationship. And, even if you can push on with the deal, it is likely you will face a negative condition, from a discounted offer or insisting you stay on board for a period post-acquisition.
Indeed, in an earn-out agreement the need for realistic and accurate projections is even more pronounced. In this situation, being able to fulfill your estimates is key to achieving the optimal price for your business. So, attempts to exaggerate your financials to improve the initial offer would likely backfire in the long run.
So leave the hockey sticks on the ice rink and instead focus on producing accurate projections!
It’s essential to start strong when determining your company growth forecast. Your base year and estimate for where this year ends needs to be accurate, as it is one of the details buyers will pay close attention to. If you can’t justify this number to a potential buyer, then revise it until it makes complete sense.
No matter what the number is, you’re going to have to prepare to explain it to a buyer. So be honest and accurate. If your actual finances are trending below the projections, let them know, and if you can justify this all the better. Trust us, this is far better than waiting for a buyer to discover this for themselves when they conduct their due diligence.
Overall, we recommend thinking long and hard about where your base year begins and what that says to buyers about your business.
Would you like to learn more about what is required to complete a successful business sale? Download our complimentary white paper on the four keys to unlock this.
Alternatively, you can learn all you need to know about the M&A process at our complimentary executive conferences. Here, Generational Equity’s experienced advisors will help you take the first step in selling your business, including what historical and projected information you should include to engage potential buyers.
Are you considering your exit strategy? Find an executive conference taking place near you or talk to our dedicated team on 972-232-1121 today.
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
By submitting my name electronically and clicking the “submit” button, I understand that I am providing Generational Group, Inc., Generational Equity, LLC, Generational Capital Markets, LLC, DealForce LLC, their affiliates, representatives, contractors, etc. (“Generational Group”) my telephone number, which may include a number that is wireless and/or a number that is on a national, state, or other Do Not Call registry or list. I hereby consent and agree to receive telephone calls including any autodialed and/or pre-recorded telemarketing calls and/or text messages (telemarketing) from or on behalf of Generational Group at the telephone number provided. I further consent and agree that telephone calls may be made using automated technology such as an automatic telephone dialing system, artificial or prerecorded voice, or SMS text messaging. Consent is not a condition of purchase. I further warrant and represent that any telephone number provided is not on any state or national Do Not Call Registry and that by agreeing to these terms and conditions that if any number provided is on any such registry, I hereby consent and agree to receive telemarking calls and/or communications including any phone calls, text messages, URLs, links, emails, etc. to the telephone number(s) and/or any e-mail addresses provided. I understand that by entering my name in the electronic form provided, that I am signing my name as equally as if it was my handwritten signature and that it is my intent to provide an “electronic signature” as that term is defined in state and federal law, as well as industry practices for e-commerce.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Group.
Success, you have been added to our list.
it all started with a conference.
start your story today,
speak directly with one of our senior advisors +1-972-232-1121