Exit Deal Killers - Part 1

Hey, this is Alex. In this short video, I’d like to share with you a couple of factors that can easily kill the deal on an exit. This is especially relevant if you're a founder of a SaaS company, a software company, a B2B or a digital agency.

So while they are many things that can drive up the value of the business, there are just a handful of things that, if they were present, can easily kill the deal or massively affect its valuation. So in this video, I'd like to share with you two of them.

One guaranteed deal killer is having messy or incomplete financial records. What do I mean by that? Well, from the buyer's perspective, when they're looking at buying a business, one of the key questions going through their head is, "How fast can I get that initial investment back and how do I basically manage the risk within an acceptable range?"

And when the financials are incomplete or basically hard to decipher, then the only way they know how to manage the risk is to substantially lower the price or make the terms a lot more restrictive. What this means is you may not get all the money you want, or the money is only released when certain conditions are met, mainly because their confidence is not as high on how solid the business is.

And the other mistake that I've seen that a lot of time can completely kill the deal is having too much revenue concentration. What do I mean by that? Again, let's go back to what I said earlier. A buyer is all about managing the risk. So if you have a company where a very high percentage of your sales comes only from a handful of clients, the buyer’s concern is, "What happens if something happens between those clients?" Now, you may say, "Those clients have been with us for years. That's not going to happen."

But to your buyer, it’s all about risk management. So as a rule of thumb, if you have more 10% or 15% from a single client, that's a really red flag for a buyer. This is true if you're a software company, a SaaS company, a B2B consulting agency. I've seen revenue concentration materially affect the exit and, in some cases, completely kill the deal.

So those are two things you really want to take proactive actions. To recap: if your records are not complete or they're messy, definitely clean it up before exiting. Hire a professional firm and do not try doing this yourself. Even most CPA companies cannot do this properly. You really want to work with a CPA company that specializes in exits.

And then secondarily, if you have too much concentration with a handful of clients, definitely diversify that.

So if this is something you'd like our insights on, reach out because we do this pretty routinely for our clients. My team would love to help guide you through this process and also help you exit in a proper manner so you can do this in a fairly streamlined fashion and also get the exit that you want.

So this is Alex and I look forward to hearing from you. If we can help you in any way, please reach out.