Selling a business can be a complex process. Identifying the right buyer is a difficult challenge unto itself. Even after finding the appropriate buyer, there are numerous factors that can cause the deal to fall through. When planning to exit your business, having the proper team in place is vital to being able to close a deal with a serious buyer. Successful M&A transactions often hinge on the collective expertise required to make sure you are prepared for any potential deal blockers.

Getting an Accurate Valuation

One of the most significant challenges owners face is underestimating the importance of a comprehensive valuation of their business and assets. Without this, owners might not meet their wealth goals, or the amount of profit from the sale of the business they need to live their ideal, post-sale life. This gap between the current business value and the owner’s financial needs is known as the Wealth Gap.

Failing to close the Wealth Gap can limit an owner’s options during their exit, potentially leading to less favorable deal structures or the need to reconsider the timing of the sale. As a seller, you do not want to discover that you may not be able to reach your exit goals while you are already getting offers. Having the proper advisory support, such as that of an experienced business broker, can ensure that you have a reasonable expectation for what your company will sell for before you list it for sale.

Make Sure Financial are Accurate

When selling a business, accuracy in the financial information provided by the seller is crucial. They must keep complete records and communicate all of the unique details of their accounting practices to their business broker. After an initial recast of the financials, the broker and seller should meet to discuss specific expenses and verify the accuracy of the numbers. The goal is to determine the most precise owner benefit or seller’s discretionary earnings figure, which is necessary for analyzing comparable sales and calculating the industry multiplier to establish the business’s market value. Accurate owner benefit figures are fundamental to simplifying the valuation process.

Financial statements must be defensible to potential buyers during their due diligence process, the phase where many deals can fall apart if discrepancies arise. By thoroughly verifying financial information upfront, the risk of issues negatively impacting the business’s value is minimized. Sellers must be completely transparent with their brokers to avoid unexpected problems during due diligence that could jeopardize the deal. Additionally, working with reputable lenders for pre-qualification can make listings more attractive to buyers, as these lenders perform their own valuations to ensure adequate debt coverage at the listing price. Accurate financials are thus essential for securing successful transactions with qualified buyers.

Screening for Qualified Buyers

Potential buyers should be thoroughly screened before sharing any confidential business information with them. This involves understanding their motivation for purchasing the business, ensuring they comprehend the business operations and their potential role as the new owner, and verifying their financial capability to make the purchase. If financing is involved, they should consult with an SBA lender to ensure there are no issues that could hinder their loan approval. If these checks are satisfactory, there is a strong chance that the deal will close.

Properly vetting buyers is not something a business seller can usually do on their own, especially not while simultaneously running their company. Entertaining too many unqualified buyers as well as failing to work with more than one buyer are both scenarios that can lead to deals falling apart. Business brokers are adept at handling multiple buyer inquiries and prequalification, as well as the confidential marketing required to keep the identity of the subject business private. They ask buyers specific questions to gather this information and then have them sign a non-disclosure agreement (NDA) before disclosing the identity of the business, or any private information relevant to the sale.

Preventing Third Party Interference

When trying to sell a business, third parties opposed to the sale of a business could create a range of problems that slow down or blow up a deal. Landlords and lawyers are often seen as “deal killers,” but this is not always the case. The key to dealing with them is to tread lightly and gain their cooperation.

For landlords, the seller usually knows the best way to engage them. Buyers often have lease contingencies in their purchase contracts for protection that need to be considered. For this reason, the seller should be proactive about assisting the buyer in lease negotiations, leveraging their relationship with the landlord. Buyers should have their resume, business experience, and financials ready and may consider alternative locations if necessary. Securing a new lease, especially with SBA loan requirements, is a significant hurdle and sellers should address this early in the process.

While lawyers should be consulted on the sale of a business, about half of small business asset sales proceed without attorney involvement. When lawyers are involved, it’s crucial to remember their advice is their opinion, and the buyer or seller must decide whether to accept it. Sometimes, lawyers’ egos or conflicts with opposing attorneys can derail deals. Buyers and sellers should carefully evaluate their attorneys’ input, ensuring it aligns with their best interests and not the attorneys’.

The Importance of a Good Advisor

Most potential deal killers could be addressed upfront, by working closely with a business broker, and being transparent. This allows your advisor to help remedy issues that could cause problems later in the sale and ensures the smoothest transaction possible. It is common for unforeseen challenges to arise in the deal process, but most of the kinks in a deal can typically be ironed out. It’s important to be patient and allow your broker time to gather facts and formulate solutions. A good broker can help you formulate a sound exit strategy and navigate you through the entire sale process, from pre-sale to closing, taking most of the burden off of you so your exit can be as smooth and profitable as possible.

If you are planning to sell your Southwest Florida business in the near future, consider having us fill the advisory role. Corporate Investment Business Brokers (CIBB) is headquartered in Fort Myers and Sarasota and serves the entire Gulf Coast of Florida. Our brokerage has been guiding local entrepreneurs through their business exits for nearly 40 years and our brokers have more than 100 years of combined experience with negotiating and closing deals for companies of all sizes and industries. Rarely does a deal die because we can’t smooth something out. If you are interested discovering whether your business is ready to sell or not, we offer a free consultation and business valuation estimate. Contact us to learn more.