By Rowan de Klerk | CEO of The CFO Centre South Africa
For many entrepreneurs, building a business is deeply personal. It represents years of sacrifice, risk and perseverance. Receiving an unexpected call from someone interested in buying that business can feel like validation. It is exciting, flattering and, if handled incorrectly, the point where costly mistakes begin.
Despite the challenging economic environment, transaction activity is beginning to pick up. Private equity firms continue to look for quality businesses, larger companies are pursuing acquisitions to accelerate growth, and well-capitalised investors are seeking distressed or undervalued assets.
As a result, more business owners may find themselves approached by potential buyers, often without having considered what they would do if that day arrived.
However, receiving an approach is not the same as receiving an offer, and receiving an offer is certainly not the same as completing a transaction.
The first conversation should never be driven by emotion.
Decide whether you really want to sell
One of the biggest mistakes entrepreneurs make is assuming that because someone wants to buy their business, they should immediately begin exploring a deal.
Before discussing valuations or due diligence, business owners should first ask themselves a more important question: Do I actually want to sell?
Many transactions collapse because entrepreneurs only realise halfway through the process what selling really means.
In many acquisitions, particularly those involving founder-led businesses, buyers expect the owner to remain involved for several years. Earn-out structures often require founders to continue running the business as employees while portions of the purchase price are paid only if future performance targets are achieved.
Selling your shares does not necessarily mean walking away.
If that future is not one you want, it is better to recognise it early rather than after months of negotiations.
Protect your confidential information
Once a potential buyer expresses interest, there is often pressure to begin sharing financial information, customer data and operational details.
While due diligence is an essential part of any acquisition, entrepreneurs should be careful not to open the doors to their business too quickly.
Sophisticated buyers understand exactly what information they need, but entrepreneurs navigating a transaction for the first time may not fully appreciate the commercial value of what they are disclosing.
Confidential information should only be shared under appropriate confidentiality agreements, through structured information requests and with experienced advisers managing the process.
A buyer who ultimately decides not to proceed should never leave with a detailed blueprint of your business.
Build the right advisory team
Running a successful business does not automatically prepare someone to negotiate the sale of one.
Corporate acquirers are often supported by experienced corporate finance professionals, legal advisers and transaction specialists whose role is to identify risks, negotiate terms and justify lower valuations.
Business owners need experienced advisers sitting across the table from them.
A capable CFO is often central to this process, but not every finance leader has transaction experience. Bringing in a fractional CFO or specialist corporate finance adviser can make a significant difference when it comes to valuation, negotiation strategy, financial modelling and responding to buyer requests.
Good advice will pay for itself many times over.
Don’t overlook the human side
Selling a business is not only a financial exercise.
Boards, shareholders, minority investors and senior management all need to be considered.
Sometimes legacy shareholding structures should be simplified before a transaction proceeds. Key executives may need to be retained, incentivised or brought into discussions at carefully managed stages.
Poor communication can create uncertainty, damage morale and unnecessarily complicate an already demanding process.
An example is a Sales Manager or Sales Director learning about a transaction that may leave them in an uncertain position. They could communicate that uncertainty to key clients or even take those relationships to a competitor, potentially damaging valuations and long-term earn-outs.
Every transaction should have a deliberate communication strategy alongside the financial and legal workstreams.
Expect the process to take longer than anticipated
Entrepreneurs are often surprised by how much time an acquisition consumes.
Transactions involving businesses valued between roughly R50 million and R500 million can easily take 18 months or longer from the first discussion to final completion.
During that period there will be negotiations, financial reviews, legal documentation, due diligence, regulatory considerations and ongoing requests for information.
Meanwhile, the business still needs to perform.
One of the biggest risks is that founders become so consumed by the transaction that they lose focus on running the business. Ironically, declining performance during negotiations can weaken the valuation a buyer is willing to pay.
A signed deal is not the finish line
Even after commercial terms have been agreed, significant hurdles often remain.
Many acquisitions are subject to funding approvals, investment committee decisions, debt financing or other conditions that sit entirely outside the entrepreneur’s control.
Until every condition has been met and the transaction has formally closed, there is always a possibility that the deal may change or even fall away.
This can also become a negotiating tactic, where a buyer agrees on a price before returning later to request a lower valuation to complete the deal.
The CFO Centre South Africa has experienced this firsthand with one of its clients. After believing a deal had been secured, the acquirer spent several years trying to raise funding before returning with a reduced offer.
Supported by a strong advisory team, the client stayed the course and ultimately secured the valuation originally agreed.
That is why experienced advisers encourage business owners to continue operating as though no transaction exists.
Don’t be flattered by the offer, play it smart
Exiting a business can transform an entrepreneur’s personal financial future, but most people will only have one opportunity to sell a business in their lifetime.
Receiving an acquisition approach should be viewed as the beginning of a strategic decision, not the conclusion of one.
The businesses that achieve the best outcomes are rarely those that react the fastest. They are the ones that prepare thoroughly, surround themselves with experienced advisers and make decisions based on long-term objectives rather than short-term excitement.
Selling a business may be one of the most important financial decisions an entrepreneur ever makes.
It deserves the same level of preparation that went into building it.
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