Closing the sale of your business often takes months to complete and comes with countless ins and outs, making it hard to notice if things start going south. Here’s more than a couple problems that typically pop up during a close, and how to avoid ever encountering them.
Integrity Goes a Long Way
Perhaps the most common mistake owners make during the closing process is limiting proper disclosures. Always do your best as an owner to provide accurate financials, sharing potential pitfalls, strengths, and also weaknesses. It will go a long way with your buyer and whoever is aiding your negotiations.
Never Deny Aid
Find a broker! A solid and reputable broker can be invaluable to the selling of any business. A mistake often seen today is when owners attempt to present and value their business themselves, rather than using an outside resource. Brokers can raise the value of your company by understanding and presenting your assets in the most appealing way for buyers and presenting your business properly as a whole.
Understanding potential versus hard assets matters greatly. Buyers are not looking at your projections for the business, but rather their own. Owners tend to unknowingly factor in emotional value to assets that are not tangible to buyers, and these types of personal evaluations can derail a close due to an unwillingness to compromise.
Due to how much time is involved in selling a business, owners can become detached as the process dwindles down. This is a big problem because while the negotiation is going on your business is still expected to run as normal and continue growing. Often, an owner can sell their business in their head long before any physical transitioning.
Planning is Paramount
Arguably the largest mistake an owner can make begins with the start of their business: not having an exit plan. Using an exit plan from the get-go in any business is of extreme importance and can make or break your close. The earlier you adopt a plan, the sooner you can allocate resources to parts of your company where it is most valued in the event of a sale.
Keep a Clean House
Nobody in their right mind would invite company to an unkept household. Likewise, not too many buyers are interested in purchasing a messy business. A problem for some owners is their refusal of help readily available to them for maintaining cleanliness and neat records. Remember, in a selling transaction everything will be looked at; the past, present, and future state of your business, and you will be expected to make this information readily available for both a brokerage and potential buyers.
Never forget that your employees and management are as valuable as any other asset you might have. A lot of the time business owners will deal in hard assets alone and ignore the intangible. When this happens, employees feel devalued, which leads to a lack of worker's drive or will to continue with your business through a merger or transition. Obviously, this would be bad news for overall value, as downward movement so close to a sale invites unwanted buyer suspicion as to why… and you will have to tell them if someone walks out on you unexpectedly.
Never a Need for Greed
Greed can be a massive negative factor in a business sale. Whether it is asking for too much or an overestimation of value, it can destroy a close. As an owner, your business is like your child; you have raised it from the ground up, and pumped years of work into it. As hard as it is to let go, remember to be fair when asking for a price.
Push Until the End
As the owner of your business, you alone know the ups and downs of the market, where your company stands within it, and your most profitable assets. One of the worst things you can do when selling is rely entirely on a third party to do your negotiating; this is not how it should work. As the most knowledgeable person in your business, you should be constantly tuned in to anything your broker is doing for you, what kinds of companies they are presenting your business to, and all the back and forth in between.
There are many different payouts that a business owner can choose from in selling, and not knowing what kind of compensation you are looking for is a frequently made mistake in a close. Whether it be cash, an employer stock ownership, or an earnout, it is very important to choose what is right for you, and sooner than later.