Selling your business can feel like an intense examination. Picture this: a stranger meticulously inspecting every aspect of what you’ve built. This process, known as due diligence, is essential but can be overwhelming.
Professional acquirers will have a comprehensive checklist of questions to determine if your business is a worthy investment. They’ll want to know:
- When does your lease expire and what are the terms?
- Do you have consistent, signed, up-to-date contracts with your customers and employees?
- Are your ideas, products, and processes protected by patents or trademarks?
- What kind of technology do you use, and are your software licenses current?
- What are the loan covenants on your credit agreements?
- How are your receivables? Do you have any late payers or problematic customers?
- Does your business require a license to operate, and is your paperwork in order?
- Do you have any pending litigation?
Beyond these objective questions, acquirers will also assess how dependent the business is on you personally. This subjective evaluation involves some investigative techniques, often using the following tricks:
Trick #1: Juggling Calendars
An acquirer might ask to reschedule a meeting last minute. This tests how personally involved you are in daily operations. If you can’t accommodate the change, they’ll dig deeper to understand why and identify areas where the business relies heavily on you.
Trick #2: Checking for Vision Alignment
Acquirers will ask you about your vision for the business. Be prepared to answer confidently. However, they might also ask your employees the same question. If your team provides inconsistent answers, it signals that the business’s future plans are primarily in your head, not ingrained in the company culture.
Trick #3: Talking to Your Customers
Expect potential buyers to speak with your customers. They’ll ask questions like, “Why do you do business with this company?” If customers talk about the benefits of your products or services, that’s great. If they focus on their personal relationship with you, that’s a red flag indicating the business’s success is too tied to you.
Trick #4: Mystery Shopping
Often, acquirers will research your business anonymously before expressing interest. They might pose as customers, visit your website, or walk into your establishment. Ensure that every interaction, especially those involving new customers, showcases a seamless and consistent experience without relying on your personal involvement.
Navigating the sale of your business requires careful planning and awareness of these potential pitfalls. By understanding and preparing for these tricks, you can present your company as a strong, independent entity ready for new ownership. This will position you favorably at the negotiation table, setting you up for a successful and lucrative exit.
Learn more about the common transition pitfalls and how to avoid them on this episode of Succession Stories, Avoiding Transition Pitfalls with Laurie Barkman: https://thebusinesstransitionsherpa.com/succession-stories-podcast/113-avoiding-transition-pitfalls-with-laurie-barkman-the-business-transition-sherpa/
Curious about what your business transition will look like?
DM Laurie Barkman, The Business Transition Sherpa, with any questions. Schedule a call today at TheBusinessTransitionSherpa.com.
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