October 10th, 2019
We talk a lot in LXCouncil meetings about strategies to position your business for sale. It’s one of the things most business owners fail to consider and plan for until they are actually ready to sell. The problem is, in most cases, you need to start planning and positioning for that day 5-10 years before that day arrives. In this article, we thought we share some common deal breakers when selling a business, and more importantly, how to avoid them.
Selling Your Business – 7 Things That Will Break Deal Every Time
- Buyer Lacks the Means
No matter how much a prospective buyer may want your business, he may simply not have the financial wherewithal to meet your price. This requires an assessment on the buyer’s financial strength before the deal falls apart due to lack of financing available. If possible, have a broker or third party assess the financial strength of your perspective buyer before you waste time on someone who does not actually have the means to buy the business.
- Poor record keeping for your business
Your potential buyer is going to do their due diligence on your business before they buy it. Nothing can flag a deal breaker quicker than having poor records about your businesses operation. In particular, you need to ensure your financial records are completely up to date. Tax returns, P&L statements, balance sheets, and other financial documents must be 100% current and accurate. Again, no matter how motivated a buyer may be to purchase your business, without accurate records, the deal will quickly fall apart.
- Not being upfront about your business or misrepresenting information
We get it…you are anxious to sell your business and you want to tell the potential buyer that everything is “sunshine and roses.” Putting a positive spin on the business operations is a good thing, but you do not want to misrepresent or exaggerate anything. If you don’t disclose or address risks in your business, the buyer may walk away very quickly. If you have risks or issues that the buyer should know about, tell them. Don’t let them discover it on their own, or you will most likely lose the sale.
- Excessive Delay
Once you have made the decision to sell the business, avoid the temptation to delay the deal. You have reluctance to give up control of something you have built and nurtured, and may want to be ultra-careful … to the point of losing the deal. Time is a killer of deals. It is not on your side. Make sure you are ready to pull the trigger. The buyer may have reasons to close the deal quickly on their end. If you drag out negotiations or present other delays to the buyer, you may find them leaving for other opportunities.
- Too High of a Price
If you don’t have the price of your business established (at least in your mind), then trying to work this out during negotiations with a potential buyer may be a deal breaker. If necessary, have a third party do a business assessment to give you a possible range of pricing. Remember, the buyer is taking on most of the risk of acquiring your business, so set a rock bottom price that you won’t accept any less, and stick to it. If the buyer thinks the price is not worth the risk they are taking on, it could be a deal breaker.
- Incompatibility with the Buyer
The best buyer is someone who you have built rapport with. In some cases, such as a sales company buying a service company, there may be compatibility challenges. Understanding the buyer’s philosophy and background can smooth many challenges during the process. If necessary, bring in that third party company to assess each side of the deal and identify any compatibility challenges that may sour the deal
- Poor Communication with the Buyer
You have to communicate effectively with each other to ensure the deal goes through. Verbal discussions are a great way to start the negotiating process. Once you send anything in writing, there can be confusion over language, intent, details, and more. An honest and open dialogue will help ensure you don’t have ambiguous details out there, or a misunderstanding the can stop the deal in it’s tracks.
Succession planning and business sales are complex topics. That said, they are two of the most important topics for CEOs and business owners. A business mastermind group, like LXCoucil, can help your business navigate the complexities. Having a sound board and advisory council made up of other non-competing CEOs and business owners is absolutely priceless when working to navigate and succession plan or business sale.
If you’re ready to take your business and leadership skills to the next level, and if you think your business could benefit from more insights like what’s offered in this article, let’s start a conversation. LXCouncil may be the perfect next step!
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