You’ve decided to sell your business. It has taken about three to six months, with confidential marketing and buyer vetting, to find your perfect buyer.
The Letter of Intent (LOI) is in place. You’ve agreed to the price and terms. You can see the goal line. The last major piece of the puzzle that is left, as you and the buyer prepare the purchase agreement, is due diligence. This is when the buyer looks deep inside your business.
Then things start to go south, things that you could control. It’s easy to mismanage the sale of your business during due diligence; here’s how:
- You are slow in providing financial reports. Time kills deals and your lack of response time is not helping to move the transaction along. This irritates the buyer.
- Your buyer receives your financials but they are inaccurate. You blame it on your bookkeeper and accountant and try to find the correct documents, further irritating the buyer.
- Your buyer, after reading the correct financials, has many questions. Questions that you do not understand or you don’t want to be bothered with. You decide to connect the buyer to your accountant who is not the most savvy person to deal with. Your buyer wonders why you don’t understand simple financial questions.
- The buyer uncovers red flags. These are issues you were aware of but thought they’d never come up. By this time your buyer has had it and decides to check out.
The above scenario will almost always stop a transaction in its tracks. Be sure to have your financials organized well in advance of selling your business. Make sure you understand your financials. If you have any red flags get them out on the table well before due diligence. Explain to the buyer how the issue occurred and the best solution moving forward.
Selling your business is about trust and momentum with your buyer. Avoiding these four mistakes will help you maintain that trust and get you to closing.
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 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.