Successfully selling a business is rarely easy, and far too many business owners fail to realize how difficult the selling process can be. In many instances, business owners become frustrated and make decisions that undermine their efforts. That’s why CGK Business Sales takes the time to work closely with every client and explains all the details involved when marketing a business.
Issues will always come up during the sale of a business, but our team of experts has the experience needed to resolve problems so a sale can be successfully closed. If you’re considering selling your business, here are just a few of the issues that frequently arise during the sale’s process.
Not Completing Proper Preparations
Failing to prepare properly for a sale is a major issue. Before attempting to market a business, it’s vitally important to document all aspects of the business. Prospective buyers want to see complete and up-to-date documentation of financials, business planning and projections, lease details, and other factors that impact a business’s price. When it’s time to sell your business, take the time to put together all the documentation needed early in the process.
Setting a Price That’s Too High or Too Low
While the majority of sellers tend to set their prices too high, some will underprice their business when it’s time to sell. Both of those options are detrimental to the seller. A low price might well result in a quick sale, but the net proceeds generated won’t provide the profit the seller needs to see.
So, how can sellers avoid pricing issues? It’s always a good idea to have a professional provide a complete valuation analysis. The exact methodology used to arrive at an appropriate asking price will vary somewhat depending on the type of business, but there are certain strategies mergers and acquisitions experts employ. The best way to determine a price is to take the time early in the sales process to evaluate the business and potential as well as the local market conditions.
Failing to Plan for the Sale Far in Advance
The time to properly prepare for selling a business is when it’s purchased or first opened. That may sound a little far-fetched, but it really isn’t. Decisions made throughout any business’s life will directly impact its value when it’s time to sell.
For example, a large percentage of business owners defer maintenance on both the property and equipment. The idea is to generate higher profits, but things don’t really work that way. Buyers don’t want to invest in a business that’s failed to stay up to date.
Even the company website or social media pages provide valuable insights into the overall condition of a company. Sites that are dated and ineffective undermine the company’s value and make it more difficult to sell. It takes time and money to build and promote a brand, and buyers are always looking for a turnkey operation that will generate income from day one.
Not Properly Screening Potential Buyers
Not everyone inquiring about a business is actually interested in purchasing that business. Many “lookers” are simply seeking information they can use to better their own operations. When a business owner provides confidential information without carefully screening the potential purchaser, that information may be used by competitors to steal proprietary information, become privy to key business strategies, or recruit employees.
M&A advisors always recommend qualifying prospective purchasers prior to providing confidential information. There are several ways to qualify potential buyers.
- Ask why they’re looking at the business. Buyers should be able to provide solid reasons why they’re exploring a specific purchase.
- Does the buyer have financing in place? Most people shopping for a business already have their financing in place or have, at the very least, approached lenders for some type of preliminary loan approval. If they haven’t done so, how are they proposing to finance the purchase?
- Established business buyers should also have references available to check, even if those references are simply their LinkedIn profile or website. It’s important to determine whether a buyer will be honest and straightforward during the purchase process.
- Is the prospective buyer willing to sign a non-disclosure agreement? These agreements are required, but it’s always a good idea to have this in place before disclosing any proprietary information.
Of course, other issues that will come up with certain types of businesses. M&A experts and business brokers will know the correct questions to ask when qualifying a potential business buyer.
Not Being Totally Honest with Buyers
Buyers always expect a complete and clear picture of any business they are considering. In many instances, sellers will tend to “puff.” They’ll exaggerate the good points of their company while simultaneously downplaying and negatives. That’s not a good idea.
Most buyers will employ professionals to evaluate a business prior to purchasing it. That means building inspectors will go over a structure to determine its condition and outline needed updates or repairs. Accountants will review the seller’s books to ascertain whether there are any irregularities that must be addressed. Lawyers will undoubtedly review the seller’s ability to provide a clear title to the business and its assets.
The net result is that sellers must avoid providing anything other than a completely accurate summation of the business and its assets to avoid jeopardizing the sale and prevent any future legal issues.
Downplaying Confidentiality Issues
When selling a business, maintaining appropriate confidentiality is vitally important. If vendors or competitors become aware of a potential sale, that information can, and frequently will, negatively impact a company’s value. Mergers and acquisitions advisors and business brokers understand the importance of confidentiality and will take steps to avoid making the sale known to everyone.
At the same time, there are circumstances when the seller may be perfectly okay with everyone knowing the business is for sale. The decision on what to make public and what to keep confidential will need to be carefully considered. In many cases, the company lawyer and accountant should be invited to participate in the decision-making process. Discuss the options with a business broker to decide on a marketing strategy.
Deciding if Employees Should be Made Aware of Sale
There are mixed feelings about whether employees should be made aware of a possible sale. Many employers don’t want to risk losing key employees and will not inform them the business is for sale. However, not informing employees may actually make it more likely key employees will leave if they happen to find out beforehand that the business is for sale.
One way to mitigate the potential of employees leaving is to let them know their jobs are secure even if the business is sold. This is usually done years in advance of any potential sale. However, since most sellers do not start this process well in advance, confidentiality then becomes a must. Many buyers will want to know that they can retain the employees, after the sale. This can make or break a deal. Discussing that option with an M&A advisor when listing the business for sale is always recommended.
Ignoring the Future
Remember that marketing a business often takes a great deal of time. While there are examples of businesses that have sold virtually overnight, that’s not common. Most businesses will take months, and sometimes years, to sell. That means sellers need to make some important decisions.
All businesses evolve, but owners trying to sell their business may be tempted to maintain the status quo rather than staying abreast of trends and business needs during the sales process. In many cases, owners won’t update equipment or procedures during the sales process. That can easily work against the seller obtaining a solid and profitable sale.
When new ways to stay ahead of competitors arise, it pays to take advantage of those opportunities even when a business is for sale. If the business owner fails to keep up with current trends, competitors will take advantage of that opening. That means the business will no longer be as competitive and over profits are likely to decline. The business is no longer as attractive to buyers, and a sale may be lost.
The trick here is to evaluate the ROI of any upgrades to determine if they’re worth the time and effort. If there is a good chance an upgrade will improve the company’s profits, it’s worth making the investment. Remember, the timing of new equipment purchases needs to be discussed well in advance with your M&A advisor to figure out if this helps the sale or simply takes money out of the seller’s pocket.
Get Advice Now
If you’re considering selling a business any time in the near future, now is the time to discuss your plans with one of CGK’s business brokers. Obtaining the best price for a business takes time and careful planning.
Discussing a sale well in advance allows you to make any improvements needed and to put together all the documentation required. Buyers will want a complete and accurate picture of your business before making an offer.
It’s also important to consider a lot of other aspects when selling a business. In some cases, the timing of putting a business on the market will be critical. There are external as well as internal issues that will impact the sale of your business. Our experts understand the trends and stay abreast of issues that affect sales. Get in touch today to get your sales process started on the right foot.