When selling a business, the last thing a business owner wants is to see a deal fall through at the last minute. While many sales close smoothly, others seem to be faced with hurdle after hurdle, and unfortunately, deals can fall apart in the end. As a business owner, there are some things you can do to prevent your deal from collapsing. Most importantly, if you want a smooth, successful sales process, you must work with a business broker. Together, you can navigate the sale together, with a clear and well-prepared plan to get your business sold. Choosing to take on the sale of your business alone could lead to wasted time, frustration, and no buyer for your business.
Consider these common M&A (Merger & Acquisition) obstacles, and how you, together with your business broker, can prevent them.
Whether a buyer is looking to purchase a house, a boat, or a business, a red flag could cause them to walk away from a deal. When it comes to selling your business, buyers don’t want to see red flags when it comes to financial records. Because their future livelihood may rest on the financials of your business, it is important to offer them in a neat and organized manner. If you aren’t currently familiar with the day-to-day details of your financials, now is the time to get reacquainted. Sit down with your accountant or CPA to evaluate your records and to be sure that they are accurate. If you have been running personal expenses through the business, remove those as well, so the buyer sees the most accurate picture of your business.
While your financial records are certainly critical in the sale of your business, there are other red flags to deal with before you place your business for sale. Evaluate your client concentrations. Do a majority of your sales come from a handful of customers? This is a definite red flag for potential buyers, who want to see a diversified customer base. In addition, work to fill all positions with highly qualified employees that intend to stay with the company once it changes hands. This can put a nervous buyer at ease, knowing that a well-trained staff will be available through the transition and beyond. When the buyer has peace of mind, it is much less likely that they’ll back out of the deal in the end.
Nothing is more frustrating than investing time to work with a buyer, only to later find out that the buyer is not qualified, either financially or professionally, to follow through with the sale. This is why working with an experienced business broker is critical when selling your business. The right M&A (Merger & Acquisition) professional will leverage their vast network of contacts to locate, vet, and qualify potential buyers, all while you continue to focus on running your business.
Your broker should focus on a few key factors while qualifying prospective buyers. They will want to know from where they plan to receive financing or if they’ve had any bankruptcies in the past. They will also look at their career history, including work experience, industry knowledge, and any additional skills they have that can transfer to their new business. It is not uncommon for a broker to run background checks as well. Once the buyer has been thoroughly vetted and deemed qualified, you can have confidence moving forward with the sale.
Most business brokers recommend selling your business when things are going great. Understandably, this may sound a bit counterintuitive. After all, why would you sell if your business is profitable, the economy is flourishing, and you are healthy enough to run your business, right? While this is true, being forced to sell because of an illness or financial struggles is hard for many business owners to cope with. Many owners who feel outside pressure to close the deal end up selling for much less than the true value of their business or they get cold feet and walk away. As the business owner, it is important for you to decide when the time is right to sell your business.
After investing years of hard work and other resources in your business, it is only natural that you may be hesitant to hand over the reins. Take the time to truly decide that you want to sell your business. This could take months or even years. Develop a plan for selling your business, and, more importantly, for what you plan to do once the business is sold. Having goals beyond the sale of your business, and focusing on those goals, can help to avoid cold feet as your closing and the transition nears.
Securing the prospective buyer’s trust is essential to completing the sale. Before they agree to invest time and money into the business, they need to believe that you are providing accurate information. If new issues come to light that were not disclosed during due diligence, the buyer may be leery to continue in good faith. This could result in them devaluing your business or walking away altogether, either of which could be a frustrating loss.
Be sure to tie up all loose ends before you place your business for sale. Fix equipment, keep contracts in good standing, and fill vacant positions. In the event that you can’t fix an issue, be upfront and honest from the beginning. Your credibility as a business owner will be reflected in the value potential buyers place on your business. An open and honest sales process leaves very little room for late surprises and potential deal breakers.
While there are many potential obstacles to selling your business, working with an experienced business broker or M&A professional is the best way to prevent them. Together, you will organize your financial records and create an honest and positive marketing plan. When you are ready to sell your business, your broker will work to identify and qualify prospective buyers and begin the process to transition the business. Avoid red flags, and be upfront and honest with buyers from the beginning. This should lead to a quick sale and a smooth transition for all involved.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!