Often business owners overlook the fact that selling their business is like selling their home. It requires the right presentation and correction of problems to increase its value to a buyer. After the signing of an offer or term sheet, the buyer will begin to review everything about the business in a process known as “due diligence.” You must anticipate and expect that the buyer will find roadblocks to closing the sale. You should predict the potential roadblocks and raze them in advance. The closing will not occur until the buyer and seller have resolved these roadblocks through negotiation. If you wish to be prepared for that inevitable negotiation, you should consider and understand the nature of the seven principle roadblocks which are discussed below:
- Valuation: Obtain an independent valuation report or at least a detailed report on comparable business sales to assist in valuing your business.
- Changing Business Conditions: Prepare a business plan that will identify strategies and market conditions, which will allow you to intelligently answer business condition inquiries.
- Financial Status: Obtain a financial review or audit of the business financial records so that you may credibly present them to a buyer.
- Presentation – Internal Documentation: Create employment agreements, proprietary rights and confidentiality agreements, as well as other written business agreements and policies, which will be shared with the buyer and will clarify your business practices.
- Legal Issues: Organize vendor and vendee contracts, licenses and permits; clarify loans and transactions between you and the business, asset ownership and related debts, and all other items that are typical for a legal due diligence checklist, which may be obtained from your legal counsel.
- Entity and Structure: Seek legal advice regarding your present legal entity and the tax and legal consequences of each type of sale structure (stock, assets, merger, etc).
- Management Succession: Consider whether you or other employees are necessary to ongoing operations and whether you wish to remain in the business.
Just like there are experts that can assist you to sell your home, your legal and financial advisors can help you identify and answer these questions, as well as many others, to better present your business for sale and to receive the greatest value.