If you wish to sell your business or to do a merger, you – or an M&A advisor - might already be busy writing your Information Memorandum. By now, you might have noticed that it is not as easy to write it as initially seemed, especially when it came to making financial projections. Making projections is a long and complicated process and it is understandable that you are having trouble writing them. People usually make the same mistakes when projecting their finances for any business plan, and the same can be said for information memorandums. So here are a few common mistakes to avoid.
Making incomplete projections
When doing mergers and acquisitions it is logical to want to present your business in the best light possible. Information memorandum is a way to introduce your business to potential buyers, and it is therefore imperative to leave a good impression on them. However, for exactly this reason many people fall into a trap. They present only the good side of their business, while hiding the ugly. When presenting your projections it is imperative to be honest and show the whole picture, even if it is not favorable. But, fear not, a good strategy in this case, would be to include solutions to any future problem you may predict. After all, that is what Financial Projections are for anyway.
Not making enough assumptions
Another way people make incomplete financial projections is by making their list of assumptions too short. Making assumptions is a basic step in writing your projections, and maybe one of the most important ones. All of your projections will be based on these assumptions, therefore you should make as long a list as you can, in order to be able to make the most accurate projections.
Not doing market research
Entrepreneurs who underestimate market research, are missing out on all of the benefits it can bring to their business, especially when it comes to making financial projections. Having a good grasp of the market and its trends can be of great help when making your projections. All the data collected through Market Research can help you make your list of assumptions. Knowing all the changes the market is undergoing, or the ones that are about to happen, is a sure way to make the most precise financial predictions for your business.
Not basing your claims on data
Your Information Memorandum has to be based on facts about your business. So, when casting your projections, do not make your assumptions out of thin air, they have to come from somewhere. Just because you experienced a steady revenue growth for the past couple of years, does not mean it will continue into the next one. There are many contributing factors that can change the course of your business operations. That is why gathering all the information you can get your hands on and making your assumptions on actual data is what will make your financial projections credible, and consequently your information memorandum.
Avoiding these common mistakes will help you make the most realistic and accurate Financial Projections and a well formulated and well written information memorandum. Both of them are needed for a smooth merger and acquisition process, since they may be the biggest contributing factor for a successful transaction.
No comments:
Post a Comment