1. Ugly Books – lack of prep, no paper trail, low sales
Your company’s paper trail is what is going to make or break the deal. Ideally, the books have been nice and tidy for the last few years but we know that’s not always the case. Do some housekeeping if necessary. At the very least, be able to provide legal documentation and information.
- Corporate Tax Returns – previous 3 years
- Property lease/tenant leases
Buyers will also want to know the business is healthy. Does the current Profit and Loss statement look appealing? Make sure you are gathering enough key metric data to accurately represent the company’s value. If sales haven’t been too hot lately, now is a good time to do some marketing and offer promotions. Good-looking books aren’t just organized, they show business is on the upswing.
- Last 3 years P&L Statements – Year-to-date numbers as well as quarterly or seasonal trends
- Inventory and equipment
- Products and revenue streams
2. Not hiring help – Lawyers, Accountants, and a Broker
When it comes to running your business, you’re the boss. When it comes to selling your business, leave it to those that do it best. Deals will always be more in your favor when you have the right team in your corner. It’s not just about people having your back, it’s about creating a win-win for you and the future of your company. Leverage the legal and market expertise needed to properly navigate the process.
- Lawyer – Let a specialist in local law review terms and agreements.
- Accountant – Ensure you’re presenting accurate numbers and verify the buying power behind each offer.
- Broker – The nucleus of the entire transaction
- Analyze the market and establish a fair selling price
- Find and qualify buyers
- Manage and negotiate offers
- Review closing docs and arrange the transition
3. Unjustified pricing – Too high or too low
This is where the Business Broker really shines. Having correct expectations for what your company is currently worth, what it might sell for, and how long it will sit are all critical in deciding if this is the right time to sell.
Set your listing price within a range acquired from market activity. Find the sweet spot that is just high enough to get top dollar without scaring off potential buyers. Pricing too low might help you move faster, but not knowing your value can cause valid investors to overlook the opportunity. Business Brokers are experts in generating net sheets and determining what buyers will be looking for.
4. Waiting Too Long – Respect the process
The leading months (if not years) should be spent prepping and nurturing an attractive business. It’s easy to get attached or fear letting go of everything. Don’t miss your chance to cash out. Stay current on market conditions so you know when things are ripe and be ready to make a move.
Getting stuck on the sideline has residual effects:
- Market shift – Risk getting less money at closing. Offers may be fewer and lower at a future date.
- Plans on hold – Listing, marketing, screening, negotiations, due diligence, and transitioning can take years to complete. What’s your timeframe for retirement or your next chapter?
- Obsolescence – If your industry is hot, expect more competition. A competitive business model can disrupt the industry with a new product or service. Don’t be left playing catch-up.
- Health and Nature – Natural disasters, government shutdowns, deaths, illnesses. Some things are out of our control. Is your business able to rebuild in the event of losing property or people?
Look out for your future self by seizing a good opportunity when it arises. Always weigh your options, never feel the need to settle, but also know when to hand things over.
5. Selling to the Wrong Person – Think Beyond the Close
Healthy selling conditions and thorough marketing can attract multiple clients. Start adding layers of filters as the transaction unfolds and be confident with your decision. The perfect candidate may not offer the most money, but they are always a good fit for the business.
Some potential deal breakers to look out for are:
- Picky terms – Loan and due diligence terms can cause delays or crash a deal altogether.
- Bad leadership – Do they have the needed experience? Have you spoken with any references?
- Being hard to work with – Usually, sellers work with buyers to ensure a smooth transition. It’s not just your employees that will have to work well with them, you will too.
- Changes that conflict with your values – Whether it be in staffing or customer base, ensure they will stand up for things you feel are important.
Part of this can be analyzed by accountants and lawyers, some needs to come from your gut. Obviously, anyone even being considered is pre-approved financially, but most of the conclusion will come from your understanding of how they will build the business and engage the team. Negotiate where you can, and trust your instincts on the rest.
6. Fluffing the Numbers – Tell it Like it Is
As stated earlier, if the numbers are down, there is usually room to advertise and recover. If not, there are options. It’s always best to play it as it lays even with worries of a shrinking offer. Total transparency is needed on both ends to establish a win-win deal.
Worthy buyers have teams of lawyers and accountants to verify the data provided. You’ll only be fooling yourself to think a few nudges to the numbers will go unnoticed. Be mindful of how taxes are filed and funds are allocated. The easier things are to understand, the more trust the buyer will have moving forward.
7. Unplugging too early – No quitting yet
Buyers are drawn to your business because of the wonderful things happening there. Make sure all the parts keep moving through closing. As an owner, you need to continue to lead and motivate the pack. Carry your load, develop key members of staff, and put the finishing touches on things before heading out.
Shoppers will be asking detailed questions about daily operations so the deeper you are in the mix the better you will be able to answer. Also, staying involved is good for business. Deliver on your promises of growth early by providing a productive work environment with a reinvigorated group of people.
Do your best to keep your crew. Retention is going to be a big factor when allowing someone else to take over. Share your vision and let employees know they will be in good hands. Offer incentives to stay and negotiate for their well-being. Promote from within and help new leaders understand their roles.