Why Nobody Has Told You Yet

Here is a question worth answering honestly. If a buyer's diligence team walked through your business next month, what would they find that you have never heard from anyone?

Most owners assume the answer is nothing. They have a good CPA. They have an attorney they trust. They have a wealth advisor who has managed the family's money for fifteen years. If something were seriously wrong with how the business would read to a buyer, surely one of them would have said so.

Almost always, none of them has. And the reason is not that they missed it.

This is not about competence

Back in March I wrote that most owners have an excellent advisory team that has never once been in the same room. That was about coordination. This is a different problem, and in some ways a harder one, because better coordination would not fix it.

There is one specific question about your business that sits outside every engagement you are paying for. It is this: what will a stranger discount when he reads your company, and what would it take to remove that discount before he arrives?

Nobody on your team was hired to answer that. So nobody does.

Your CPA

I am a CPA, so I will start here.

Your CPA is engaged to do two things well: keep you compliant and keep your tax bill reasonable. Both are legitimate and both are valuable. Neither one involves reading your records the way a buyer's accountant will.

In fact the two jobs pull in opposite directions. A good tax result usually means lower reported earnings. A good sale result means higher reported earnings that hold up under examination. Your CPA is paid, and thanked, for the first. Raising the second without being asked means telling a client that work he has been happy with for ten years may be costing him at the other end. That is an uncomfortable conversation, with no fee attached, about an event that may be years away.

So it rarely happens. Not through negligence. Through scope.

Your attorney

Your attorney arrives when there is a document. A lease, a contract, a dispute, an entity change, and eventually a purchase agreement.

By the time there is a purchase agreement, there is a buyer, a price and a timetable, and the attorney's job is to protect you inside a deal whose economics are already mostly set. That is exactly the right job for that moment. It is simply the moment after the question could have been usefully asked.

A good attorney will often see the problems early: the customer contracts that do not assign, the key employee with no agreement, the real estate held in the wrong name. What they are not engaged to do is tell you what each one will cost you in price, three years ahead of a transaction nobody has asked them about.

Your wealth advisor

Your wealth advisor sees everything except the largest asset you own.

For most of the owners I work with, the business is the single largest part of their net worth, often by a wide margin. The financial plan either leaves it out or carries it at a figure the owner supplied. Last week I wrote about the six places that figure usually comes from. None of them is an analysis of the company.

The wealth advisor cannot see inside the business, is rarely invited to, and has no basis for challenging the owner's number without implying that the owner does not understand his own company. So the plan gets built on the number, and the number goes unexamined.

Your banker

Your banker is the one advisor who reads your financials closely, which makes the silence here the most interesting of all.

A lender is asking whether the business can repay the loan. That is a question about cash flow and collateral. It is not a question about what a buyer would pay, what a buyer would discount, or whether the business runs without you. A banker can be entirely comfortable with your credit and have no view at all on whether the business transfers, because that is not his risk.

The one person who will tell you

Eventually someone does say it out loud. It is the buyer's diligence team.

They are thorough, they are well paid, and they have every reason to find the discount, because every item they find comes off the price. They are the first people in the life of your business who are engaged specifically to read it as a stranger would.

The trouble is when they arrive. They arrive after a letter of intent, after you have told your family and probably some of your people, after the other interested parties have gone away. A finding that would have been a work plan three years earlier now becomes a renegotiation, and you hear it from the one party at the table who benefits from it.

That is the real cost of the silence. Not that the problems exist, because every business has them. It is that the first honest reading happens at the moment you have the least room to act on it.

Three questions that break the silence

You do not need anyone's permission to ask the question yourself. Put these three to your own team, directly, and pay attention to the answers.

Ask your CPA: If a buyer's accountant read my last three tax returns, what would he adjust, and in which direction?

Ask your attorney: What in our contracts, leases and ownership structure would a buyer's attorney flag first?

Ask your wealth advisor: What does my plan assume the business is worth, and where did that number come from?

Good advisors will welcome these questions. Many of them have been waiting, some for years, for an invitation to answer.

And if the answers come back as "I would have to look into that" or "that is not really my area," nobody has failed. You have simply found the gap between the engagements. It is where the discount lives, and it is exactly where my work sits.

Where this leaves you

What I do is read the business the way the diligence team eventually will, years before they arrive, and then work alongside your CPA, your attorney and your wealth advisor so each of them can act on what I find. I do not replace your team. I bring them the one question none of them was hired to ask.

If you are two or more years from a transition and nobody has ever read your company as a stranger would, the simplest place to start is the value gap estimate. You answer questions about the business in plain language, it takes about fifteen minutes, and it asks for no financial statements. I review every one personally and send you the results, and if what it shows is worth a conversation, we have it then, while the answers are still a plan rather than a price.