It is imperative that you maintain the trust of the person who is interested in buying your business. The last thing you want to do during negotiations when selling your business is to lose credibility with the buyer, otherwise, it’s most likely that your deal will go up in smoke.
Buyers come to the table with excitement and expectation. All of that excitement and expectation can be worn away, however, if the seller works against himself by trashing his own credibility. It may come sooner, or it may come later, depending on the sensitivity of the buyer.
Below are five red flags the seller should avoid in order not to damage his/her credibility when selling their business:
- Don’t present yours as the perfect business. A red flag will typically occur when the seller portrays the business as one having no room to improve. Buyers want to hear where there are areas where there could be improvements, since in most cases scaling the seller’s business from its current size is integral to their investment. Sellers should present constructive ideas for improving and expanding the business, such as increasing margins by saving money on costs and expenses.
- Don’t lack passion in your presentation. A lack of passion in the seller’s presentation and first meeting with the buyer is a potentially fatal flaw. Even though you may be tired and ready to exit the business, you certainly started the business with a lot of passion. Let that initial passion show when meeting and discussing the business, and the future of the business, with the buyer.
- Don’t speak with multiple voices. If multiple partners are involved in selling your business, the buyer should hear a consistent message from all of them. Hearing conflicting or divergent voices on an issue will only confuse and upset the buyer. Who is he/she to believe? What’s the true story about this business? If the message is not consistent, it raises questions about how the company is being run, and divergent messages may raise more issues that would need to be addressed.
- Don’t put off responses to a buyer’s inquiries during due diligence; respond in a timely fashion. Failure to do so may cause the buyer to suspect you’re hesitant to reveal potentially damaging information. It’s also possible that a late response will cause the buyer to believe that there’s a problem because all of your required information is in disorder; that’s a sign of trouble in the management of the company. Needless to say, if your responses are late, that will only prolong the negotiation.
- No surprises. The worst thing is to have a major issue or liability be discovered during due diligence, since at that point the due diligence should be confirmatory not evaluatory. Moreover, once you’ve signed a Letter of Intent and entered an exclusivity period, leverage shifts from the seller to the buyer. In general, customarily, if something is going to cause a deal not to proceed early on, it will cause it not to be consummated later as well. The best strategy is to get sensitive issues out in the open early, where you have a good chance of positioning the issue and managing the negative impact. If a seller waits to disclose a major issue, and the late disclosure causes the buyer to decide not to consummate the deal, then the seller has incurred costs, taken valuable time away from the operation of the business and generally compromised the company.
The good news is that most of the above pitfalls can be avoided through solid preparation and advice.
Need a professional to help plan a successful exit strategy?
A professional business broker can identify and help you tackle other steps based on the specific circumstances of your business.
You can also download our Selling a Business Checklist, which offers insight into how to get your business ready to sell:
If you need help putting together a strategic plan, please contact the Benjamin Ross Group at 215-357-9694 to speak with a business broker who can help you start the process.