When selling your business, the easy part is preparing it for sale, hiring a professional business broker, and getting a buyer to make an offer. Now comes the hard part. How are you going to get from an offer to a check in the bank? This step in the selling process is the most fraught with peril. Follow these guidelines and your journey should be as smooth as possible.
- Don’t let attorneys take over the deal: It’s important to have legal counsel to assist in the document preparation and the closing. But if you are using a business broker, all business terms should be negotiated between the principals, with the broker as the intermediary, not between attorneys. The attorneys should put what is agreed to in writing and make sure you are covered from a legal perspective.
- Operate under letter of intent during due diligence: The buyer can back out of the transaction if your numbers don’t add up. Once the buyer signs off on the financial aspect of the deal, you start with the heavy legal agreements. If the buyer backs out of the purchase during the due diligence review period, you didn’t waste a lot of money on documents that will never be used. Due diligence is the time to show the cash sales in your business or where you identify the personal expenses that are run through the books. Be prepared to bring your receipts, register tapes, credit card statements, and anything else that backs up your numbers. Your general ledger, bank statements, and your canceled checks will come into play at this point.
- Sell due diligence by the pound: Bring as much material as you can. Nothing looks better to a buyer than a room full of boxes. Though they won’t review all of them, knowing the materials are available goes a long way toward making buyers feel comfortable with you and your company.
- Don’t wait until the end to deal with the lease: If the buyer can’t get a lease, you can’t close the deal. Problem areas include the buyer not being financially qualified (according to your landlord), your lease having a short term left and your landlord refusing to extend it, and your landlord wanting to dramatically raise the rent. Work with your attorney to resolve any lease issues that arise.
- Make sure the buyer financing is coming through: How is the buyer going to pay for the business? You need to be wary if the buyer is seeking financing. This could be in the form of a Small Business Administration loan, a home equity loan, other bank financing, a family loan, or a loan from a 401(k). Your broker should make sure that the buyer’s financing is moving through the pipeline while all of these other tasks are being completed.
- Consider seller financing: As the “bank,” you have the ability to approve the loan if you finance the sale. You will get more for your business and sell it faster if you are willing to stand behind the sale. Many buyers require seller financing because it indicates the seller is telling the truth about sales.
Peter Berg is managing director for Transworld Business Brokers in Fort Lauderdale, Florida.