What You Hold Back From Your Advisor Costs You at Signing

There is usually one thing. A dispute that has not been resolved. A customer who has given notice and has not told anyone else. Margins that have been slipping for three quarters. A reason for selling that is not the reason you have been giving.

You are not lying about it. You are waiting for the right moment, and you tell yourself it will probably not come up.

It comes up at the worst possible point, and the mechanism is specific.

The reps and warranties

At closing you sign a document in which you make promises about the state of your company. Litigation and claims. Compliance. Whether the financial statements fairly present. Whether anything material has changed since the last balance sheet. Whether there are undisclosed liabilities.

Those promises are personal and they survive the closing. They are backed by an escrow, by an indemnity, and in most cases by you.

So the thing you did not mention does not quietly fail to come up. It arrives as a sentence you are being asked to sign, in a room with both sets of lawyers, on a day when everybody expected to be finished. You can sign it and carry a liability you have just knowingly created. Or you can say something, at the latest and most expensive moment available.

Most deals that reach that point and then stop do not restart.

Why the late disclosure is worse than the thing itself

This is what owners consistently misjudge. The issue is almost never fatal. The timing is.

A buyer who learns in week three that you have a customer dispute adjusts for it: a specific indemnity, a holdback, a price adjustment, a condition. It becomes one line among forty, and the forty get traded against each other.

The same buyer learning the same fact in month seven learns two things. He learns about the dispute, and he learns that you knew and did not say. The second one reprices everything, because now every other representation you have made needs checking, and he is deciding whether this is someone he wants to be in business with for an earnout period.

The dispute costs you a number. The concealment costs you the deal.

And the clock makes it more expensive

Most of these things get cheaper to fix the earlier you touch them, and the curve is steep.

Two years out, an unresolved claim can be settled on ordinary terms by a lawyer who is not under time pressure, and by closing it is historical. Nine months out, it is settled badly because the other side can see you need it gone. In diligence, it cannot be settled at all — the buyer is watching, the counterparty has worked out that something is happening, and the price of peace just went up.

The same is true of a declining margin, a lease nobody renegotiated, a key employee with no agreement, and a customer concentration that got worse. All of them are addressable. None of them is addressable quickly.

Your advisor is not the buyer

The instinct to hold something back is a negotiating instinct, and it is being applied to the wrong person.

The buyer’s team is going to find it. That is literally the job you are watching them do — several professionals, several weeks, being paid to locate exactly the thing you are hoping stays quiet. Assume they will.

The only question is whether your side knows first. An advisor who knows in week one builds the deal around it: the right structure, the disclosure made at a moment you chose, the answer prepared before the question. An advisor who finds out when the buyer does has been negotiating on a false picture, and so have you.

It works like the emergency room. If you leave something out because you are embarrassed or because you think it is unrelated, the person trying to help you is working from a chart that is wrong. They will still do their best. It will be the best version of the wrong thing.

The real reason for selling counts too

Including the one owners are least likely to say out loud.

If you are selling because you think the sector is about to get harder, that is a legitimate and common reason to sell, and the deal gets built differently when it is known: the timing, the buyer type, how growth is presented, what you are prepared to warrant about the future. A buyer who later concludes you knew something you did not share has a claim, and the reps you signed are where he makes it.

Tell your advisor the actual reason. It changes the plan, which is the point of having one.

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This is what we do. Prism Edge starts by finding the issues a buyer will find, while there is still time for them to be worth something less than a deal. Everything you say sits inside the engagement, and the earlier it is said, the cheaper it is.

And the full chapter on this is in Selling Your Business The Easy Way, free to download here.