Selling a business to private equity can be a complex process, and entrepreneurs often overlook crucial steps that can impact the success of the deal. In this article, we interview experienced private equity partners to uncover the common pitfalls business owners face when preparing for a sale. From insufficient financial documentation and inadequate management teams to failing to address potential red flags, these strategic investors highlight what entrepreneurs often neglect and offer actionable advice to help sellers avoid costly mistakes and maximize their company’s value in the eyes of other investors.
Explore our other articles in this series of roundtable discussions with private equity investors:
- The Signs Private Equity Looks for When It’s Time to Sell a Business
- How Private Equity Prepares a Business for Sale to Ensure a Smooth Deal Process
- How Private Equity Determines If a Company Is Prepared to be a Platform Investment
- Private Equity’s Advice to Business Owners Selling Their Company
Meet the Panel of Private Equity Partners
The following responses have been edited for concision and clarity.
Sean McNally
Not enough owners take the time to understand what they’re trying to achieve and what they’re looking for in a partner. There are many private equity firms—each with different angles and value-adds. Once you start a sale process, it gains its own momentum, making it harder to steer. If you have clarity on your goals and values, it will help you navigate the process and make informed decisions.
Brandon Muirhead
One thing that can be hard to anticipate is the type of partner you’re looking for. Private equity can vary drastically—from firms that just provide capital and check in quarterly, to those firms that become deeply involved in operations. It’s important to decide in advance what kind of partnership you want. Do you want someone hands-on? Or someone who just provides capital for growth? Knowing that early helps when weighing potential buyers or partners—it may even be more important than taking the highest offer.
Ryan Anderson
Too often, entrepreneurs don’t think about the buyer’s perspective. Buyers want to know who’s going to be around for the next five years, so it’s important to build depth in the management team.
Entrepreneurs also need to make sure their projections are realistic and that investments have been made to set up the buyer for success. A reputation for selling businesses that fail post-sale is not something any private equity firm wants.
Brendan Forghani
Sometimes entrepreneurs try to handle too much internally, which can slow things down. Hiring the right advisors can be really helpful.
More generally, I’d advise keeping an open mind about the type of deal and partner you’re looking for. Often, entrepreneurs end up going down a different path than they initially envisioned—whether that’s a majority deal turning into a minority deal or vice versa. Staying flexible is key.
Also, it’s not just about making sure your finances are in order—legal documents, contracts, employee agreements, and litigation issues are equally important. Legal matters can come to light late in the process and slow things down, so having that sorted early is wise. Be mindful of decisions you’re making leading up to a sale—some things, like renewing contracts, may be better done with the new partner.
Erik Dykema
In addition to the Quality of Earnings (QoE) and legal representation, it’s crucial for business owners to have realistic expectations about the value of their company. The valuation environment from a few years ago, when the sky was the limit, isn’t the reality today. It’s important to understand what’s achievable in the current market and not to get caught up in what might have been possible in the past.
