Selling Your Business? Seven Mistakes to Avoid

Selling Your Business?

Seven Mistakes To Avoid

Entrepreneurship is alive and well in America and independently owned businesses are the backbone of our country. Some of us will find, at some point, a reason and need to sell our privately held business. Since this is an extremely important financial transaction for the business owner, there are some vital concepts that can make that transaction more successful for a seller and a buyer. Here are some tips, learned the hard way.

1. Refrain from telling your employees the company is for sale. People are sometimes fearful of change and the thought that a stranger will purchase the business creates unfounded fear that their jobs may be in jeopardy. It is more humane to alert the employees of the sale only after the closing has taken place and the check clears. Why rock the boat before then? What if the business doesn’t sell?

2. Hire the appropriate experts to assist you as a team to sell your business. These would include your attorney and your CPA. It would be my advice to hire the services of a professional business broker or mergers and acquisitions specialist to lead you through the process. You, as the owner, have enough on your plate running the day to day operation of your business. Let someone else handle the qualification of potential buyers. They can weed out the inevitable tire kickers, lookers and various characters that may darken your door asking for your proprietary and sensitive business information.

3. And, while on the subject of proprietary and sensitive information, it’s now time to discuss the subject of a Confidentiality Agreement. Do not give out any information without a signed Confidentiality Agreement. Most buyers have been exposed to these agreements and are accustomed to the fact they must sign this document preventing them from disclosing the fact that your business is for sale or using your sensitive information for any purpose other than to analyze the business for a possible purchase.

4. Schedule buyer meetings when the employees are not present. The only exception to this is if you normally tour strangers through your business and have a private secure office in which to meet. Ideally all buyer meetings should take place after hours or offsite. We may think employees don’t know what’s going on, but we are usually wrong. If an employee finds that the company may be for sale, he or she may start looking for another job, purely in self defense. To a buyer, one of the main reasons to buy an existing business is the asset of having experienced knowledgeable employees in place.

5. A complete package of information should be compiled that would enable a buyer to make a decision. The very minimum documents to include would be three years tax returns, year to date profit and loss statements and balance sheets, an asset list and a copy of the lease. If the building and property are included in the offering, include a copy of the site plan of the property with building dimensions. Have these items copied and in a file to hand to your business broker or the buyer at the first meeting.

6. Take a hard, objective look at your business premises. If there is dirty carpet, dingy walls in need of paint or clutter on the floor, remedy that prior to any meetings with your broker or a buyer. It will be a financial boon to you to have the place looking neat and clean. When a buyer enters your offices and building, he is envisioning himself coming to work there and wants to be proud of his purchase. You may want to ask a friend to also look objectively at your premises. I once had a very wise seller who redecorated his private office by putting in a new mahogany desk, nice art work and thick, lush carpet prior to putting his company on the market. He also enhanced the showroom, making it very attractive, clean and new. The buyer walked in the front door and was very impressed. But he absolutely fell in love with the seller’s office and bought the business.

7. Yes, you created this fabulous business. You deserve credit for that. However, it is important to convey that you have faith in the ability of a buyer to carry the ball after the sale and successfully continue the company’s success. I once had a buyer and seller meeting on a large company that started out very well. These purchasers had the perfect background and training, the right capital requirements and the motivation. At the end of our meeting, the buyer asked the seller. “You have owned this business for a long time. What will happen when someone else new takes over?” The seller replied, without skipping a beat, “I’ll tell you what will happen! This business will go right down the tubes without me!”

After a stunned silence, our perfect buyers politely got up and left the room, never to be seen again.

The above recommendations are based on true life experiences of what can and has gone very wrong in the sale of a business. With a professional team on board, your business sale should go very smoothly.