Seven Things NOT To Do When Selling a Business

Don't make costly mistakes when thinking about selling your business. Here are seven important tips to help you do it right.

1) Treat your business like you would treat your car if you knew you were selling it.

If you own a nice car that’s in good shape, you may be thinking about selling it now, before the defects emerge. Or you might have a car that looks good, but you know something is about to blow. The instinct in either case is to sell it before a buyer can find the defects. Buyer beware. When selling a business do the OPPOSITE. Get the business in great shape; expect a buyer to look everywhere for everything. Run the business as if you plan to keep it for 20 more years. Bottom line: don’t focus on hiding potential defects. Every business has challenges, and real buyers will understand this. Your job as you prepare for sale is to grow your markets, improve your sales, and focus on profitability

2) Let key employees know right away that you are planning to sell.

You may be thinking about your best and loyal employees. You feel like they’ve been good to you, so you should give them a head’s up. This is a worthy and decent instinct, but it could easily backfire on you and your treasured employees. Anything could happen, and the value of your business could diminish as they look for other jobs, tell their friends etc. In many cases, the employees will want to stay on. This is likely to enhance the value of the business. There IS a time to tell your employees – and that differs depending on the business. In most instances, the fact that your business is for sale is confidential, and is the subject of nondisclosure agreements. You need to maintain control of that process.

3) Let your suppliers know you are planning to sell.

One sure way to endanger your supply line and have the word spread without your knowledge.

4) Let your inventory and schedule capital improvements run down.

You might be thinking that depleting inventory would make the business more saleable – the new buyer pays less for the inventory and new equipment. Sure, you should keep an eye on unsaleable and unsuccessful inventory, but be sure your motives are in check. You must operate the business as if you were planning on keeping it. Keep up your standard ordering procedures.

5) Now that you plan to sell your business, focus on your next move

NOT!! Some business owners are anxious to move on. Some might even encumber the existing business with loans to fund the next business. Why not? You figure you’ll pay off the new loan with the proceeds of the sale. That’s quite a gamble! You also need to remember that the terms of a sale is likely to include a non-compete clause, so be sure your new business is in no way competing with the old one. You need to be focused: selling the business is a job in itself. Don’t underestimate the time it will take for meeting prospective buyers, stepping through due diligence, etc.

6) Leave the documentation to the broker, lawyer and accountant.

Sure, that’s what they are paid for, right? Well, yes but only to a certain extent. You have two primary tasks: 1) make the sure the business is saleable and is operating cleanly and efficiently and 2) be able to document #1. A good business broker will walk you through what you need, but at a minimum you should have tax returns, P&L sheets, balance sheets, and sales statistics.

7) Taking cash under the table is fine – most business owners do it. Now that I’m selling, why not?

Regardless of the illegalities – which is an individual choice – this does not make business sense. Your business may be valued using a multiple of revenue (gross or net). So, for every $1 you take in you may get up to $3 or more in a sale price. Why deny yourself that increased multiple. You might say, “well the business has been valued already based on past revenue. Now that that is done, why not take unreported cash?” The answer is simple: any buyer is going to look at revenues up to the current date. They may well demand a reduction in price if current revenues are not in line with historical revenues.

Want to avoid costly mistakes when selling your business?

Bay Area Business Coaching, www.bayareabusinesscoaching.com, is here to help.