Hints to Avoid Deal Breakers When Selling a Business
Most small business owners are not familiar with the dynamics of selling a business because they have never sold one before. Most people only buy or sell a business once in a lifetime. While there are lots of potential deal breakers, avoiding the following ten mistakes will help to lessen the probability of having a business transfer transaction never get to contract closure:
- Neglecting to run your business operations as usual until the entity is transferred to the new owner(s). Do not take for granted that your business will continue to run by itself with the same success and profitability if you decide to cut back on spending the normal amounts of time and money normally needed to sustain operations. A prospective buyer can be easily scared away evenif he/she sees a short-term downtrend in sales and profitability.
- Overpricing the business – be realistic and cognizant not only of the current financial climate (e.g., lending availability, economic indicators, etc.) but you must take into account the current state of buyer psychology that is driving business acquisition activity trends.
- Breaching the confidentiality of the sale – keep all conversations private and be sensitive that your employees may be quick to notice changes in your behavior.
- Not preparing for the sale far enough in advance – have your financial documents up to date and easily accessible. Make your accountant and lawyer aware of your intentions and make sure that they respond to all requests in a timely manner.
- Not anticipating buyer requests and questions – learn to anticipate from prior discussions with former prospective buyers as to what types of questions will be asked and be prepared to back up your answers with documentation that substantiates your feedback.
- Not expecting to stay long enough for the transition period – the complexity of the type of business you are selling usually determines how long a buyer expects a seller to stay on for training and consultation. Be realistic and expect to provide the amount of time that you would expect if you were the buyer.
- Not expecting to sign a non-compete agreement – family members might have to be included as well. This usually is a mandatory requirement and a deal-breaker if an owner does not agree to sign a non-compete agreement.
- Being inflexible in structuring the transaction – example: expecting an all cash deal. Having a realistic understanding of the current economic climate, including lending availability and buyer willingness to take risks are strong factors that need to be considered when structuring a business sale transaction.
- Being unwilling to negotiate by being inflexible and unconcerned that all parties on the buy and sell sides need to consider their part of the deal as a “win.” This is critical to making any deal happen. If either party does not feel that they are obtaining what they want out of the deal, it will never get to closing.
- Not facilitating the closing process in a timely, efficient manner. TIME IS THE KILLER OF ALL DEALS.