Selling a Business: Deal Killers
You found a buyer for your business, they make a great offer, you accept, and everything should be smooth sailing after this, right? Many times, that is the case, but often sellers run into the dreaded “deal killer” before the sale can close.
So, what is a Deal Killer?
Most deal killers come up during the process of Due Diligence, which happens after a buyer submits a letter of intent (LOI) and the seller accepts the offer. Due diligence is essentially a type of inspection period where a buyer can inspect almost anything about the business to ensure it’s in good working order and all the claims the seller and their representatives have made are accurate.
Deal killers fall primarily into four major categories:
- Financial Killers
- Legal Killers
- Expectations Killers
- Transfer Killers
Financial killers are when a buyer investigates all financial records to ensure that there is an accurate picture of what the company makes and how it makes it. If they find discrepancies, that likely kills the deal.
Legal killers happen when a buyer investigates the legal viability and structure of the company and doesn’t like what they discover.
Expectation killers happen when there are unrealistic or unmet expectations on either the buyer or seller side. If one or both parties have certain expectations about the business transaction that aren’t met, this will usually kill a deal.
Transfer killers happen because buyers have several fears when walking into a business. They are worried about employees leaving and that they will have to search for new employees right away or that customers will find a new business to frequent after hearing about the sale.
How Do You Avoid Deal Killers?
Financial killers are probably the most important on this list, and it’s important that you or your accountant have your records together before due diligence begins.
Legal killers are also important to address with your lawyer to ensure everything is in order before advertising your business for sale.
Expectation killers are probably the most difficult killer to avoid. Make sure to utilize effective communication and set realistic expectations early on with buyers interested in your business.
Transfer killers can be a more complicated to avoid but the key is to have a solid transfer plan in writing. This will ensure that job responsibility and the ability to run the company is transferred seamlessly between seller and buyer.
Don’t Underestimate Deal Killers
No matter how much you drive value in your business, if some of these deal killers are not eliminated or reduced it can mean the difference between having a sellable company or not.
Many sellers are able to go through this process on their own, including due diligence and trying to avoid deal killers. But if you’d like someone to help you through the selling process from start to finish, it might be best to look into working with a business broker. These small business advocates have experience selling businesses and make sure deals close and that expertise often proves valuable for sellers.
If you aren’t sure if you are ready to sell or if you are looking to prepare your business before selling to get its maximum value, check out the Prep 2 Sell course that will set you up for success when you are ready to sell. Or, if you’re ready to sell and would like to schedule a free, no-obligation consultation call with one of our brokers, click here.
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