15 Fatal Errors Sellers Make That Prevent The Business From Selling

1. Failure to provide information about your business- Gather your financial statements and tax returns dating back three years. In addition, develop a list of inventory or equipment that's being sold with the business. In addition, create a list of contacts related to sales transactions and vendors and gather any relevant paperwork that relates to your current lease. These are the documents that buyers will ask for so it’s imperative to have these documents ready or it will look like you aren’t serious about selling your business. 

2. Failure to provide clean books and records-Today’s buyers want to see clean books and records including profit and loss statements and tax returns. Looking at past history is crucial to determining future revenue potential so having strong up to date books and records is critical in increasing the value of your business.

3. Failure to maintain confidentiality-The less people that know the business is for sale, the better it is for you. Do not tell vendors or employees you are selling the business. Vendors may not want to remain loyal or may change the terms of the contract. Employees may get worried and leave. 

4. Failure to continue to maintain your business at its peak operating capacity- Buyers will be inspecting the business. They will want to see that the business is growing and profitable.  The business needs to be operating at the highest level or the buyer will get scared. In addition, if financing is involved, the bank will ask for an updated profit and loss statement. If the profit and loss has been drifting down, then the buyer will want to negotiate a discount off the agreed upon sales price.

5. Do notnegotiate on your behalf without an intermediary- Emotions can run high with such a large transaction price. However, unlike a real estate sales transaction, the seller and buyer have to maintain a great relationship to work together post closing during a training period. 

6. Failure to agree and document a transition period- Buyers want to see that you are invested in their success. Most buyers will want the previous owner to serve as an advisor to ensure a smooth transition.Those roles and tasks that the owner does should be documented and transferrable to a new owner throughout a training period.

7. Failure to agree to a non-compete- Buyers want to see that you aren’t a threat to open up the same business nearby. They are aware you know all the critical components of the business and don’t want to face you as competition. 

8. Failure to to secure qualified buyer- The best buyer is is the one that can close. It’s important to pre-qualify buyers and avoid a strenuous negotiation that is doomed to fail. Knowing the buyer’s financial qualification, motivation and skill sets to bring into the business is a must.

9. Failure to move the deal along-Time kills all deals. Bad things can happen if the deal isn’t moving along to the next step within a reasonable amount of time. The attorney and accountant have to work together to get deal done.

10. Failure to place a proper value on the business- A proper valuation is crucial as buyers are very educated these days. If the business is listed for sale too high or too low- it will scare off potential buyers or reek of desperation. The value of the business is based upon anticipated earnings. However, to figure out these future earnings, the buyer needs to base it on past history. The financial statements must tie together and show a successful track record of profit and loss. Buyers do not pay for potential. They pay for past performance.

11. Failure to properly structure the deal- The deal structure should be negotiated between the buyer and seller and documented in the letter of intent before the due diligence period has begun. It’s important to be negotiated upfront or the seller gets placed in a vulnerable position. Too much money tied to future earnings, note or buyouts, non-compete contracts, consulting agreements, royalties, earn outs or seller notes will cost the seller in the end. 

12. Failure to plan ahead and properly prepare for due diligence-The due diligence period is when most deals fail.  It’s important to know what the buyer is going to ask you for during due diligence. As such, it’s a must to have all documents organized and substantiate the basic numbers provided to the buyer. The seller should have updated records and a sales portfolio readily available as clean books and records are imperative. One falsehood will cast doubt over the entire business as seeds of inconsistency kill deals and undisclosed liabilities are a deal killer. The buyer will complete an examination on everything from a business’ financials to its real estate and equipment.

13. Failure to seek the right professional assistance- Pick an experienced attorney and CPA that has helped to sell businesses before. They know what to expect and seeking the right advice from the right professional is a must to close a deal. 

14. Failure to give professionals the information to properly market the business-It’s a must to help the broker understand the business. Examples include industry characteristics and growth opportunities.The broker is there to get you the highest price and they will not know all the ins and outs of the business.  The more information they are given, the more opportunity there would be for recasting the financials to show the business in the best light to buyers.

15. Failure to control the deal-It’s important to the seller to understand the timeline of the deal- what happens and when. For example, when to speak to landlord and start negotiating a lease or protecting the confidentiality of the buyer until it’s time to disclose it. When there is a detour from the proper procedures, the buyer takes control of the deal.