Buyers are going to write you a very big check, an experience you can relate to if you bought the business you are currently trying to sell. Writing a check that big can be very scary, so buyers are going to want reassurance from a seller that the decision they are making is the right one.
Small businesses can be messy – with incomplete financial records, complicated contract structures or other assorted skeletons in the closet – and this inherent messiness can scare buyers away. What many sellers try to do is calm the fears of buyers by hiding anything about their business that might be seen as a negative. This is a monumental mistake.
Why? Due diligence.
Due diligence is an important part of the sales transaction process, a part where a buyer gets to open up the books and look behind the scenes to get a really thorough understanding of the business. Due diligence begins after a seller accepts an offer to purchase from a buyer, so it comes after initial meetings, conference calls and negotiations between the two parties.
What does due dilligence mean for a seller? It means anything you’ve tried to hide – fudged numbers, unpaid tax bills, the fact that 75% of your business is based on only one contract – these things will inevitably come out during due diligence. If you’ve tried the smoke and mirrors routine, even if it was done with the best of intentions, the perceived dishonesty will almost certainly kill your deal and drive a perfectly good buyer away.
What should you do instead? Be honest, always and from day one. There is no such thing as a perfect small business, so the things you think are negative and might scare away buyers are going to occur in absolutely every business a buyer looks at. Serious buyers see issues as fixable and as opportunities for growth, so risking your deal trying to hide any issues is pointless and counterproductive to your chances of a successful sale. Simply put, those who lie to buyers never sell.
Are you thinking about selling your business, but are worried that the skeletons in the closet will impede a sale? Would you like to know more about how to change a buyer’s perceptions of issues with the business from negative to positive? Ask us! Leave any questions or comments here and we would be happy to help!
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