Dos and Don’ts That Can Save Millions when Selling a Business

by Terry Monroe

My own experience working with many buyers and sellers — as well as learning from his own mistakes as a buyer and seller — have helped me recognize some major points that business owners should consider if they are serious about putting money into their pocket rather than having it taken out.

If at all possible, always sell your business when it is doing well. By doing good, I mean that every year over the last several years has been a little better than the year before. Buyers are buying a future cash flow and they want to build and improve on what you have built. Unless they are looking for a project or workout situation, selling on the way up will get you the most money.

Be realistic in your asking price of the business. Nothing turns a buyer off faster than an asking price that is not within reason for the industry of your business. Buyers do their homework before they purchase a business, and, with the information on the internet, it is not hard to find some reasonable comparables as to what the business in question should sell for.

Have a plan as to what you are going to do after the sale of your business. Without a plan of what you are going to do, you will not be fully committed and will possibly sabotage the deal subconsciously.

Do your own due diligence on your business acting like a buyer. What is the first thing buyers do before they purchase a home? They get a home inspection and then go to the seller and chip away at the seller to either fix things or reduce the asking price. When selling a business, if you want to avoid having someone chip away at your price, do a business inspection on your own business with a due diligence checklist.

Always, always, always have detailed financial information available on your business. More times than I can count I have seen business owners lose out on millions of dollars because they never took the time to create and generate good financial records showing specific categories as to where the money is coming from and how much from each division. Instead, the business owner had everything lumped together, making it impossible for the buyer to determine where and how much money was being made from the business. Buyers don’t care how the previous generation ran the bookkeeping. If the numbers are not concise and correct, the business will automatically be discounted.

Be forthcoming on providing information to the buyer. Don’t be paranoid that the buyer is going to get into your books and then go out and start another business like yours. A well-prepared confidentiality agreement will protect a seller’s business. If a seller is reluctant to share information that is needed by the buyer, it sends the signal to the buyer to wonder what else are the seller hiding.

Hire an intermediary to oversee the sale process. Selling a business is a complex transaction and the odds of the transaction closing are increased with a professional business transaction intermediary overseeing the process. Only use an intermediary who has been involved in the selling of businesses before, because you don’t want an individual going to school on you. Remember, politicians, celebrities and sports players use agents and managers as intermediaries because they want to get the best results and allows them to do what they do best.

Terry Monroe is founder and president of American Business Brokers & Advisors and author of Hidden Wealth: The Secret to Getting Top Dollar for Your Business. Monroe has been in the business of establishing, operating, and selling businesses for more than 30 years. As president of ABBA, which he founded in 1999, he serves as an advisor to business buyers and sellers throughout the nation. His knowledge and expertise in multi-store operations and sales has led to many multimillion-dollar transactions. As an expert source in the convenience store industry, he writes a routine “Financial Insights” guest column for Convenience Store News and has been featured in numerous publications, including The Wall Street Journal, Entrepreneur magazine, CNN Money and USA Today.

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