So you are thinking about selling your business. While you may already be imagining yourself somewhere on a beach in Florida or Hawaii, there are some common mistakes that, if unavoided, won’t allow you to Sell Well™.
- FALLING BEHIND IN TAX FILINGS – The first thing any potential buyer will ask you for is your annual tax returns, and you can’t make your buyer wait for this key piece of information. Is your sales tax in arrears, or late in filing? That will definitely hold up the sale. When you are marketing your business for sale, you want to be viewed by prospective buyers as a serious, well prepared seller, and you want to avoid the perception that you are hiding something. Make sure that your taxes are filed first thing after the end of your fiscal year.
- NOT BEING CURRENT ON INTERIM INFORMATION – The next thing a prospective buyer will ask for after looking at your tax returns is your interim information. Buyers want to know that there were no unexpected decreases in sales, that no major contracts or customers were lost, and that no major changes in costs occurred. Make sure that your accounting system is updated and that recent information is readily available.
- LETTING YOUR OPTION TO EXTEND THE LEASE LAPSE – Make sure that you are either not near an “option to renew” deadline or that you already have elected to extend your lease. If you can negotiate more favorable terms, that will be a big plus for a buyer. In any case, it is important to have a lease nailed down, otherwise your sale will depend on the buyer’s ability to negotiate a new lease. If the buyer is taking out a loan to finance the purchase, the bank will require the lease term to be not less than the loan term (for example, an SBA loan will typically run for 10 years).
- NOT MAKING EASY COSMETIC IMPROVEMENTS – Your business appearance matters. Low cost cosmetic fixes can create a good perception and a positive emotional attachment. It is similar to how a clean car sells better than a dirty car. Nothing major is required, but repair your sign, clean up the store or office, polish the floor, clean the carpet, replace damaged ceiling tiles and replace burnt out lighting. Clean the windows and mirrors. Make minor equipment repairs. Together, these changes can greatly improve your business aesthetic.
- MAKING TOO MANY IMPROVEMENTS OR INVESTING IN MAJOR CAPITAL EQUIPMENT – While it’s a good idea to handle the cosmetic changes, don’t buy expensive new equipment or any other material capital assets. It’s unlikely that it will boost your sales and profitability quickly enough to recover your investment through an increase in the sales price of your business.
- RUNNING YOUR INVENTORY UP OR DOWN OFF “NORMAL” LEVEL – If your business looks like it’s going out of business, a buyer will offer a “going out of business” price. If your business looks like you have too much inventory that you can’t sell, a buyer is going to offer a highly discounted price significantly below your cost or refuse to purchase all of your stock. Make sure your inventory continues at a normal level and prospective buyers will be impressed by the way you manage your business.
- YOU AND YOUR PARTNER(S) ARE NOT ON THE SAME PAGE – Maybe you would like to sell but your partner is unsure. Maybe you and your partner haven’t yet agreed on price, when to sell, or whether to finance. It is critical that you and your partner get on the same page before you start marketing your business for sale. Otherwise, those differences of opinion or perspective will manifest during the sales process and present execution issues.
There are many other mistakes to be avoided once your business is on the market. An experienced, competent business broker, like Comer Business Brokers, will be able to help you to stay on top of things and Sell WellTM.