Problems to Avoid When Selling Your Business

When it comes to selling your business, you have to expect that your prospective buyer will conduct an extensive search of you and your company. With that due diligence any proverbial skeletons in your closet will more than surely come to light and could compromise your sale.

While certain issues from your company’s past can’t be erased, you can help mitigate how these skeletons impact your potential sale by making these problem areas known from the get-go. By identifying your problems early on, not only are you avoiding any unexpected discoveries late in the process, but you’ll be better prepared to explain how these issues have been solved, or, at least, can be resolved.

If the problems that linger within your business aren’t yet solved, then you may expect the buyer to use this to his advantage by renegotiating the purchase price. If the problem is significant enough, and there are no strategies in place to address the issue, your potential buyer may walk away.

Common problems you’ll want to address to aid in your sale

There are dozens of issues that may linger in your company’s past that could compromise your sale. These include (but are not excluded to):

• Any liens on the business
• Any licenses that are no longer current
• The need for capital improvements
• A decline in revenue
• Environmental issues
Net working capital issues
• Patent expirations
• Cash flow issues
• Restricted credit
• Cost of insurance
• Product liability claims
• Outdated marketing materials
• Issues with lease terms (such as not having a lease or being locked into a lease with poor terms)
• Issues with your inventory (outdated, excessive, slow moving)
• Poor financial records
• New competitors
Lack of diversity among your customers or suppliers

It’s worth taking a look at each of these areas, as they pertain to your business. Be objective and honest as you examine your potential problem areas. These issues are sure to raise a red flag to prospective buyers. If you’re not prepared to explain the remedies (or strategies put into place to remedy these issues) you may lose the sale.

The issue behind exposing your company’s problems?

Exposing your company’s skeletons seems like a surefire way to make your company less valuable. However, the more accurate way to look at this is that your company’s issues are only truly problematic if you don’t do anything about them.

By knowing the common problems areas many businesses experience, you can address these issues head-on, making your company more attractive to prospective buyers. In fact, there’s no reason to wait until you’re ready to sell to address these issues. Identifying your company’s issues – and either remedying them or putting a strategy into place – will help increase your company’s profitability, cash flow conversion, risk management, and revenue stability.

RC Victorino
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