5 Things Every Business Seller Should Know
1. Be realistic and separate the emotion
You’ve put in the years of sacrifice and sweat equity (possibly some, or a lot, of tears), and built a successful business. That is quite the feat! You have more than earned the opportunity for those years to pay off for you in the successful sale of your business. However, as a Seller, you must separate the emotions and sentiment you feel personally from your business. You must be as objective as possible and be realistic in the value of your business because a Buyer is not going to be thinking of any sentiment when considering your business. Numbers are numbers, and facts are facts. If you see the value of your business being very different from what you are provided by means of a Broker’s Opinion of Value, you may need to take a step back and think about if the value that you see is influenced by your personal attachment. Remember: a business is ultimately worth what a Buyer will pay for it!
2. Disclose everything to your Agent/Broker up front
It is natural for all of us to want to present everything—our selves, our business, our family—in the absolute best light possible. However, when it comes to preparing to sell your business, you must be honest with the Broker or Agent listing the business…completely honest, in the beginning. Even if you think it will make the business look bad. Credibility is largely important in the successful transfer of a business, and it is better to have everything disclosed to a prospective Buyer up front—the good, the bad, and yes, even the ugly—rather than for it to be brought out further along in the process after an offer has been accepted. Oftentimes, once the credibility of a Seller is gone in the eyes of the Buyer, so is the deal. So, be honest from the start with your listing Broker/Agent so that he or she can help you enhance the areas that may be lacking and/or address the issues with prospective Buyers in the start of the process. A Buyer may not see what you see in the end. Remember: most Buyers want to purchase a business they can improve and expand in some way or another!
3. Good books and records are vital to helping you get the highest multiple
The cleaner and more organized your books and records are, the smoother due diligence will be and the quicker you can reach the finish line (aka “the closing table”). In preparing your business to go to market, ask your Broker/Agent what documents and items are needed outside of the standard tax returns, balance sheets, and profit & loss statements. Then, ask what you can do to organize those items and have them ready when the time comes. Good books and records further edify your credibility in the eyes of a Buyer and will boost the confidence he or she has that the business is generating the revenue that you initially said it was—once they can prove it to themselves by your books and records. Remember: good books and records help make for a smoother and stronger sale process!
4. Due diligence is invasive—it is supposed to be!
Depending on the industry, and depending on the experience of the Buyer, due diligence can be extremely basic or extremely invasive. So, be prepared for either. Yes, due diligence can be intense because in most instances, you as a Seller, have never had someone come into your operation and request access to all of your internal and proprietary documents. However, due diligence is a part of the selling process and is typically the biggest hurdle to cross in the process. It is important that you remember time is of the essence when it comes to producing whatever items the Buyer is requesting, and not push back against their requests. When you stall or lag in getting the items over, the Buyer may begin to question credibility and suspect you are hiding something. You don’t want that. So, prepare in advance for due diligence so that when the time comes, everything is in order. Remember: successful due diligence is what “glues” the transaction together!
5. Cash offers are almost always going to be discounted
When it comes to offers on your business, be prepared for all-cash offers to be discounted. This is not always the case, but oftentimes is. As the Seller, you have decide what your objective is—to walk away with all cash at the closing table even if it is less than your asking price, or to get as close to your asking price as possible even if that means over time. When a Seller is willing to finance part of the purchase price and hold the note (“Seller Financing”), chances are he or she will get a Buyer willing to pay closer to what the asking price is because seller financing says to the Buyer: A) This business is generating enough revenue for me to meet my needs as an Owner, B) This business is generating enough revenue for me to also meet my obligation and debt service to the Seller, and C) The Seller has some stake in my succeeding as the new Owner. Yes, you may get less cash at the closing table if it is a seller financed deal, but you will be receiving monthly payments until the note is paid off that will most likely total closer to your original asking price. Remember: cash deals are always great, but be prepared that it may be at a discount!