4 Struggles You’ll Face When Selling Your Business
If you’ve ever talked with someone that has successfully sold their business, they will tell you it was worth it – yet they’ll probably confess they were met with a few challenges.
These struggles seem to be consistent with many owner-exits. I owned a business for 29 years and sold to my partners in 2012; I now help other owners sell their businesses. I experienced these struggles personally and I’ve witnessed firsthand other business owners navigating through the same difficulties. Four common challenges are:
- Keeping the Sale Secret from Your Employees
It is important, once you’ve decided to sell, that you keep this decision confidential. You don’t want your customers or your vendors to know your intentions. You especially don’t want your employees to know you are on the market. If word gets out, you may have trouble keeping employees engaged in your business. Your customers, vendors and employees often are what the buyer is buying. The selling process involves meeting with buyers, oftentimes at your business with employees present. You may feel dishonest and almost as if you are cheating on your employees, yet it’s important to keep quiet. However, you may need to inform a key employee or two to help with buyer presentations and due diligence. Choose these employees carefully and obtain confidentiality agreements.
- Minimizing Year-End Tax Adjustments
One of the perks of owning a business is the year-end tax write-offs. Your goal when selling is to have three good years of strong cash flow. This means doing away with many tax write-offs for those three years. This includes cleaning up personal expenses charged to your business. Buyers want to buy a business that is profitable. So, three years before selling, it is time you invest in taxes. A $100,000 write off might save you $35,000, in taxes yet with a 4 multiple when selling, will add an extra $400,000 to your selling price – this is no small change!
- Selling Your Business is Emotional
This might be a business you have founded. Your business is your “baby”. Selling becomes very emotional and it is difficult to cut the many ties you’ve made. With most owners, their business is their identity. You may second guess your decision, yet if you’ve planned well and have a plan for your future post-ownership, you should be fine. Using an advisor to help you sell your business eliminates unnecessary emotional decisions when negotiating with prospective buyers.
- Due Diligence Can be Hell!
Once you’ve signed the Letter of Intent and the buyer begins digging into your business to verify what you are saying is true, the process can be very painful. Most sellers struggle with this because it is time consuming and can be frustrating. Often, the same documents will be requested more than once, especially if bank arranged financing is involved. You might decide to keep your CFO in the loop to help get you through the due diligence properly. A well-organized due diligence plan with an efficient and accessible data-room for the buyer will eliminate many of the headaches.
We all seem to get through difficult times when we know in advance what lies ahead. The above mentioned four struggles during the selling process are consistent with most business sales. Be prepared and keep the right mindset and you’ll be on your way to a successful sale and future!
This article was written by Sam Thompson. Sam is the president and owner of Transitions In Business, a Minnesota based M&A firm that specializes in selling healthcare, business to business, transportation, manufacturing, distribution and IT companies. Sam is a Merger and Acquisition Master Intermediary (M&AMI) and a Certified Business Intermediary who has successfully guided countless business owners through the sale or merger of their company. Prior to becoming an intermediary, Sam was a successful CEO and business owner for 29 years before selling his $16 million business.