There are countless reasons to sell your business:
The big question is, are you prepared to sell?
When it comes time to sell your business, expect buyers to thoroughly examine every aspect of your business during the due diligence process. When buyers find discrepancies with what they were expecting to find, deals can quickly unwind. Issues found during due diligence are used to request price reductions, negotiate more favorable buyer terms, or worst of all - kill the deal completely.
Here are the most common areas business owners should focus on when preparing for sale.
Poor Record Keeping
Please feel free to start here first! No buyer wants to dig through a shoebox of receipts and invoices to figure out if your business is a good investment. If your financial records are a mess, hire a bookkeeper or an accountant to straighten them out immediately. Financial records prepared and presented by a CPA firm are a lot more credible. Poor or missing financial records are the top reason a business is difficult (or impossible) to sell.
Maintaining Confidentiality
While getting the word out about a potential sale is important, keeping the confidentiality of that sale is often MORE important. Make sure confidentiality agreements are signed BEFORE dispensing any information. Provide just enough information to potential buyers so that they can make an informed decision about proceeding with a possible purchase. Don’t provide too much information without first getting a Letter of Intent (LOI) from the buyer. The last thing you need is competitors learning more than they should or customers and employees finding out.
Listing Too High
This one may be the most common and the reason businesses can sit for years without selling. Ignoring the many recognized valuation methods available and pricing for reasons like “I need to clear X” or “My brother-in-law sold his business for X” or “The new owner could add two crews and double sales” are not valuation methods. I understand that you may have a strong emotional attachment to the years of hard work, but mistakenly thinking the buyer will pay a premium for that emotional attachment is a big mistake. Spoiler alert – they won’t! Get a professional to pinpoint a listing value that is accurate, realistic, and able to attract buyers.
Inventory Issues
If you do not know where it is, what it is, how long it has been there or how much it cost, your inventory needs work. Depending on the type of business you are selling, inventory could be the biggest annual expense. Manufacturing, retail, distribution… they all require large capital outlays for inventory. Nothing makes a buyer more suspicious than an analysis that uncovers missing, over valued or obsolete inventory. Inventory can be a significant portion of the asking price. Make sure it is accurate.
Selling When Sales are Down
Unless you must sell when sales are down – DON’T. Covid is the most recent example. Owners who sold while sales were down during Covid did so at price far less than they would have received or year or two before – or a year or two from now had they given the business time to get sales back to and/or surpass previous levels. Declining sales (for any reason) is a huge red flag to buyers.
Mentally Checking Out
You have been doing all the right things for 20, 30 or 40 years. You’ve put in the long hours. Worked weekends. Skipped going on vacation. Now you have listed the business for sale. Keep your foot down on the gas pedal! Keep running the business as though you will own it for the next several years. The worst thing you can do is tune out and let the business you have worked so hard to build start struggling or underperforming.
Hire Professionals - Broker, Attorney, Accountant/CPA.
Line up a team of professionals that can guide you. Business brokers can assist you with valuation, marketing, identifying buyers and negotiating a deal. Accountants can answer questions regarding your financial performance and advise you on the best tax strategies. Attorneys can represent you, explain the legal aspects and finalize the deal.
Real estate agents don’t sell businesses, but it doesn’t stop them from trying. One of my top referrals is a business owner who had their business listing with a real estate agent only to see it expire with little or no interest. Then there is the business owner that wants to sell the business on their own. In most cases they have never sold a business before and will never sell a business again. What are the chances they will be successful? When will they find the time to do all the work that goes into selling a business?
Nobody wants to pay the fees professionals charge, but have you ever heard the phrase, “If you think it’s expensive to hire a professional, wait until you hire an amateur”? Selling a business is a difficult, complicated endeavor. Do yourself a favor and hire professionals to help.
- Retirement age.
- You reached the goal set for an exit plan.
- You have reached your frustration threshold.
- A desire to start a new chapter in your life.
- Family/health issues.
The big question is, are you prepared to sell?
When it comes time to sell your business, expect buyers to thoroughly examine every aspect of your business during the due diligence process. When buyers find discrepancies with what they were expecting to find, deals can quickly unwind. Issues found during due diligence are used to request price reductions, negotiate more favorable buyer terms, or worst of all - kill the deal completely.
Here are the most common areas business owners should focus on when preparing for sale.
Poor Record Keeping
Please feel free to start here first! No buyer wants to dig through a shoebox of receipts and invoices to figure out if your business is a good investment. If your financial records are a mess, hire a bookkeeper or an accountant to straighten them out immediately. Financial records prepared and presented by a CPA firm are a lot more credible. Poor or missing financial records are the top reason a business is difficult (or impossible) to sell.
Maintaining Confidentiality
While getting the word out about a potential sale is important, keeping the confidentiality of that sale is often MORE important. Make sure confidentiality agreements are signed BEFORE dispensing any information. Provide just enough information to potential buyers so that they can make an informed decision about proceeding with a possible purchase. Don’t provide too much information without first getting a Letter of Intent (LOI) from the buyer. The last thing you need is competitors learning more than they should or customers and employees finding out.
Listing Too High
This one may be the most common and the reason businesses can sit for years without selling. Ignoring the many recognized valuation methods available and pricing for reasons like “I need to clear X” or “My brother-in-law sold his business for X” or “The new owner could add two crews and double sales” are not valuation methods. I understand that you may have a strong emotional attachment to the years of hard work, but mistakenly thinking the buyer will pay a premium for that emotional attachment is a big mistake. Spoiler alert – they won’t! Get a professional to pinpoint a listing value that is accurate, realistic, and able to attract buyers.
Inventory Issues
If you do not know where it is, what it is, how long it has been there or how much it cost, your inventory needs work. Depending on the type of business you are selling, inventory could be the biggest annual expense. Manufacturing, retail, distribution… they all require large capital outlays for inventory. Nothing makes a buyer more suspicious than an analysis that uncovers missing, over valued or obsolete inventory. Inventory can be a significant portion of the asking price. Make sure it is accurate.
Selling When Sales are Down
Unless you must sell when sales are down – DON’T. Covid is the most recent example. Owners who sold while sales were down during Covid did so at price far less than they would have received or year or two before – or a year or two from now had they given the business time to get sales back to and/or surpass previous levels. Declining sales (for any reason) is a huge red flag to buyers.
Mentally Checking Out
You have been doing all the right things for 20, 30 or 40 years. You’ve put in the long hours. Worked weekends. Skipped going on vacation. Now you have listed the business for sale. Keep your foot down on the gas pedal! Keep running the business as though you will own it for the next several years. The worst thing you can do is tune out and let the business you have worked so hard to build start struggling or underperforming.
Hire Professionals - Broker, Attorney, Accountant/CPA.
Line up a team of professionals that can guide you. Business brokers can assist you with valuation, marketing, identifying buyers and negotiating a deal. Accountants can answer questions regarding your financial performance and advise you on the best tax strategies. Attorneys can represent you, explain the legal aspects and finalize the deal.
Real estate agents don’t sell businesses, but it doesn’t stop them from trying. One of my top referrals is a business owner who had their business listing with a real estate agent only to see it expire with little or no interest. Then there is the business owner that wants to sell the business on their own. In most cases they have never sold a business before and will never sell a business again. What are the chances they will be successful? When will they find the time to do all the work that goes into selling a business?
Nobody wants to pay the fees professionals charge, but have you ever heard the phrase, “If you think it’s expensive to hire a professional, wait until you hire an amateur”? Selling a business is a difficult, complicated endeavor. Do yourself a favor and hire professionals to help.
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