Transaction Obstacles When Selling A Business

When selling a business, several potential "deal killers" can halt the process, discourage buyers, or substantially lower the value of your business. Being aware of these pitfalls and addressing them beforehand can help ensure a smoother transaction. Here are some common transaction obstacles when selling your business:

1. Poor Financial Records

Incomplete or inaccurate financial records raise red flags for potential buyers. They rely heavily on detailed financials to assess the health and prospects of the business. Ensure your financial statements, tax returns, and other relevant documents are accurate, well-organized, and professionally prepared.

2. Overvaluation

Setting an unrealistic price based on your emotional attachment or incorrect assessment of the business’s value is a common mistake. Buyers are looking for a fair deal based on market conditions and the business's earnings potential. Overpricing can deter serious buyers right from the start.

3. Lack of Operating Procedures

A business that heavily relies on the owner for its success is less attractive to buyers. Businesses with documented standard operating procedures (SOPs) that allow for smooth operation after a transition are more desirable. Ensure that your business can operate efficiently without you by establishing clear procedures and training staff accordingly.

4. Legal Issues

Any ongoing legal disputes or unresolved legal compliance issues can be significant deal killers. It's crucial to resolve any such issues before putting the business on the market. This includes ensuring all licenses, permits, and contracts are up to date and in compliance with laws.

5. High Customer Concentration

If a significant portion of your business revenue comes from a small number of clients, this can be seen as a high risk by potential buyers. Diversifying your customer base can make your business more appealing and stable in the eyes of buyers.

6. Poor Physical Appearance

First impressions matter. Facilities that are outdated, poorly maintained, or cluttered can turn off potential buyers. Investing in making your physical business location look presentable can have a substantial impact on its attractiveness to buyers.

7. Key Employee Concerns

Businesses that rely heavily on key employees present a risk if those employees decide to leave following a sale. Ensuring that key employees are well incentivized to stay through the transition can reassure buyers and enhance the value of the business.

8. Inadequate Reason for Sale

Buyers are wary of businesses that are being sold for unclear or concerning reasons. If selling due to retirement, relocation, or other personal reasons, make this clear. If there are business-related issues prompting the sale, addressing these issues before selling can make the business more marketable.

9. Failure to Offer Seller Financing

While not always a deal killer, offering seller financing can significantly broaden the pool of potential buyers and facilitate a quicker sale. It demonstrates confidence in the business’s profitability and eases the buyer's concerns about obtaining financing.

Conclusion

Addressing these potential deal killers before listing your business for sale can significantly increase your chances of a successful transaction. Engaging professionals such as business brokers, accountants, and legal advisors can also help identify and mitigate these risks effectively.

This post was originally posted on ericimendelsohn.com