How to Avoid These Common Business Selling Deal Breakers
When it comes to the process of selling your business, there are several things that can ruin an otherwise good deal.
Over the years, we have seen plenty of deals go off the rails. It’s always an unfortunate event. Like we mentioned in our previous post, it can happen when owners and buyers can’t see eye-to-eye on the value of the business. When owners are unwilling to budge in spite of all the evidence pointing to a lower value, many buyers will simply walk away.
There are plenty of other factors that have the potential to wreak havoc on a transaction, including but not limited to:
- Inaccurate Records – To maximize the potential value of your company, be sure to include everything of worth. For example, if an owner fails to include “cash sales” on their P&L, they won’t be able to get credit for those sales later. They’ll want to say “No, wait! My business is worth a lot more than that!” But the buyer will hold up the P&L and correctly reply, “Not according to this.”
- Undisclosed liabilities – Owners often feel like they need to downplay negatives regarding their company, which is a natural tendency in all of us. However, you can quickly lose credibility when you fail to disclose information.
Buyers really don’t like it when they find out halfway through the process that there are debts or other liabilities that you haven’t told them about. If someone is serious enough about buying your business, they deserve to know up front what they’re getting into…good, bad, and ugly. - HR / Culture Issues – Your employees are a key factor in how valuable your business is. If you can demonstrate that you’ve got a thriving, dedicated staff that is excellent at what they do, a potential buyer will be much more excited about their future with your business.
On the flip side, if you’ve got a toxic work environment with negativity, rampant gossiping, theft in the form of laziness, or even legal issues where HR would be involved…you’ve got employees who could become deal breakers. Take care of personnel issues before bringing likely buyers around! - CARES stimulus money/PPP – COVID-19 has introduced another layer of concern when it comes to selling your business: how is your company’s value affected if you received stimulus money? Are they considered grants, or will they be treated as low-interest loans?
As valuation professionals, we now have to consider the impact of these loans, local economic situations, and health concerns. Buyers are going to want to know why the owner felt the need to apply for stimulus loans. Often, the use of such things are an indication that the business has been under significant financial stress.
Obviously, 2020 has been tough on everyone. However, some industries have been harder hit than others. Someone looking to buy a restaurant may be much more understanding of the presence of a PPP loan than someone looking to buy a surgical mask factory.
(The American Institute of CPAs released an FAQ on the subject earlier this year that is helpful in assessing businesses affected by COVID-related stimulus money.)
How do you avoid the things that make deals fall apart?
At Southard Financial, we think you deserve to be able to sell your business for its maximum value. And your buyer deserves to have all of the information they need to make an informed decision. Too many deals fail because one party or the other feels blindsided, and that just isn’t right.
You can often keep your business deal from breaking down with nothing more than accurate preparation and total transparency.
We go over every company we represent with a fine-toothed comb. We leave no stone unturned when it comes to financials, physical property, employee health, and local economic outlook. When we come on board, we become the guide to help you successfully navigate the endless complications of selling the business you’ve worked so hard to build.
So when you’re ready to sell, save yourself a lot of headaches and give us a call. We’ve worked with businesses of all sizes all over the US for decades. Find out what we can do for you!
