Setting Up to Sell
An entrepreneur who is realistic and pragmatic about selling a business will fare much better than one who is not. During negotiations between buyers and sellers, these top five truths surface repeatedly.
You Really Don’t Matter
A business will have a higher valuation when the entrepreneur is not an important part of its day-to-day operation. This truth is counter-intuitive to many business owners who cannot separate themselves from their business.
Even Good Debt May Catch Up to You
Entrepreneurs should work closely with good business bankers to employ the proper form of debt to capitalise the business. However, many entrepreneurs take on so much debt that very little cash flows to the entrepreneur at the closing table. Remember, even ‘good debt’ must be paid back, and it’s the entrepreneur who does so.
Buyers Know Which Employees They Will Keep
A buyer will quickly assess a team’s strengths and weaknesses; employees who can’t assist in growing the business will create a cost to the buyer, translating into a lower purchase price for the entrepreneur.
Handshakes and Signatures May Do You In
Entrepreneurs sometimes make ‘handshake deals’ as they grow their business. A buyer’s team of Attorneys will conduct Due Diligence, and scour every document an entrepreneur ever signed, looking for reasons to re-negotiate the deal, and will incorporate language in the Purchase Agreement to protect the buyer from any handshake deals and signed obligations the entrepreneur made.
Your Business May Be Your Accountant’s Biggest Annuity
The entrepreneur’s accountant should be involved in evaluating the deal terms as defined in the Letter of Intent long before the Due Diligence phase begins. However, an accountant may be reluctant to support the entrepreneur in a positive way as they attempt to sell their business because a sale means the accountant loses a client and possibly their biggest annuity.
Are you trading now to be able to sell your business at the best price in the future?
Adapted from an article by Holly Magister, Forbes Magazine