The Number One Mistake in Selling a Business That Can Cost You Thousands
When selling a business, there are countless details to manage, from preparing your financials to finding the right buyer. However, amidst all the complexities, there's one critical mistake that can cost you thousands—failing to keep your financial records clean and organized.
Why Clean Financials Matter
The reality is, great books and records are a must when selling your business. It’s one of the leading reasons why only about 20% of businesses listed for sale actually sell. Buyers want to see a clear and accurate financial history. They are risk-averse and need reassurance that the business they are considering is stable and profitable.
When your financial records are messy, it creates uncertainty and raises red flags for potential buyers. They may question the profitability of the business or worry that there are hidden issues. This can lead to longer due diligence periods, increased scrutiny, and ultimately, lower offers—or no offers at all.
The Cost of Disorganized Books
Disorganized or incomplete financial records can result in several costly consequences:
Reduced Valuation: Without solid financial records, buyers are less likely to offer top dollar for your business. They may insist on a discount to account for the uncertainty. Buyers base their offers on past performance, and if you can’t verify your income or expenses, your negotiating power is significantly reduced.
Lost Buyers: Buyers may walk away entirely if they don’t feel confident in the financial integrity of the business. This means you could miss out on serious buyers who might have been willing to pay your asking price, had they felt more assured.
Extended Sale Process: A lack of clarity in financials can drag out the due diligence process, prolonging the time your business is on the market. The longer a business sits without selling, the more it can be perceived as undesirable, leading to further reductions in price.
How to Avoid This Costly Mistake
Here’s what you can do to ensure your financials don’t become an obstacle in your sale:
Hire a Professional: A qualified CPA can help you organize your records and ensure everything is in order. This investment is worth its weight in gold, as clean books are often the difference between a successful sale and a failed one.
Document Everything: Keep detailed records of all income, expenses, and cash transactions. Buyers want to see three years' worth of tax returns, profit and loss statements, and balance sheets. Being able to produce these quickly shows that you’re serious about selling.
Show a Positive Trend: Don’t take your foot off the gas when you decide to sell. Buyers want to see a business that’s thriving, not one that’s coasting. Continuing to invest in the business and maintaining strong sales trends can make your business more attractive to buyers.
Conclusion
Selling a business can be a rewarding process, but the details matter. The number one mistake that can cost you thousands is failing to keep clean and organized financial records. By investing in professional help and staying diligent with your bookkeeping, you can ensure that your business appeals to buyers and gets the price it deserves. Don’t let poor records be the reason you miss out on a successful sale.