Selling a business is an obstacle course of preparing your business for sale, finding a buyer, negotiating and making it through the closing without a hitch. But you can make selling your business easier if you avoid these deal killers.
- Setting your asking price to high.
Buyers will put your asking price through the grinder to
- Determine if the business can fund the lifestyle salary of the new owner
- If the return on investment will provide enough to cover the down payment
- If the business can generate enough to pay the debt service on loans used to buy the business
2. Not getting your business in salable shape.
Things that scare buyers away include:
- Low earnings with declining sales and profits
- No key staff in place
- Weak operations
- Low name recognition
- Buildings in poor physical condition
- Business is facing high competition with low competitive advantages
- Business is dependent on a few clients
- Declining industry or market share
- Expiring or problematic lease
You should try to solve as many of these problems before listing, or be ready for low counter-offers or none at all.
- Lacking a transition plan: Buyers need assurances that a business will transfer smoothly from the old to the new owner.
Things that help this include:
- Transferable contracts and agreements that firmly commit clients to your business
- Employment or non-compete clauses for key personnel
- Operation and employment numbers
- A business and marketing plan
- A personal commitment that you, the seller, will remain involved for a period of time to benefit a phased seller-to-buyer transition
- Have a short or non-transferable lease, especially if selling a restaurant or retail business that relies on walk-in business. Most buyers and lenders won’t touch such a business that has a lease less than 5 years.
- Insisting on a cash sale.
If you want all cash at closing, most business brokers will give you the following advice, “Get Real.”
- Buyer will walk away
- Buyer may negotiate a lower price to cover a cash sale
- All cash sales will increase you, the seller’s, tax bracket and taxes
- Avoid some of this by providing seller financing or a pre-qualified SBA loan
All these deal killers can be avoided by using a business broker who is familiar with your business market, the buyer market and most of all, the valuation of your business.
More information on this topic can be found in “Selling Your Business for Dummies,” by Barbara Findlay Schenk and John Davies, CEO of Sunbelt Business Brokers.
