I had a business sale fall out of escrow today because the seller was not upfront with me or the buyer when it came to providing preliminary information.  In this situation, I’m representing the buyer and had a signed MOU (memo of understanding) with an agreed price and term.  The buyer started their diligence process and some interesting things came out.   It’s not that he lied about anything he provided, but he failed to mention some significant debt issues. As his adviser, I do take responsibility in not asking enough questions and honestly not listening to my gut.  I know business owners don’t like to open their businesses and financials to external review; but I should have pushed harder in the beginning to verify what he was saying.  My gut said that he was hiding something because he would only answer my specific questions. I felt he was deciding what to tell me and not being open with everything on his mind.  It’s very difficult to advise a seller who has never been through this process when they are not completely upfront and honest.

You must understand that if you want to sell your business you need to be ready to have someone look around and perform a complete inspection of your Company.   Remember when… you wanted to sell your house and the potential buyers opened closet doors, looked in the attic, and went through your kitchen cabinets?  Then, after negotiating a price and term the potential buyers brought professionals in to perform inspections and verify everything was working and in good condition.  The same exact process happens in a business transaction except the experts presume you are hiding something and they want to find it.

Selling your business takes an enormous amount of time and takes you away from running the day to day operations.  I strongly recommend to start cleaning up your business before you decide to sell it.  Once again, remember what you did before listing your house?  You mowed the lawn, planted some flowers, fixed the gate, and painted the windows. Then you came inside and cleaned out the storage closet, filled the holes in the walls, cleaned the bathrooms, etc.  Do the same exact thing for your business.  Some basic clean up areas to start with are your financials, files, and the office/warehouse.  You need to be able to show three years tax returns (that actually tie to your financials). You need to provide copies of all legal and financing contracts. You need major client/vendor contracts.  Finally, everything that is key to your success will need to be verified.

Buying a business is scary. The more you can ensure buyers are receiving a well running machine, then the better chance you have to actually close.  Also, be honest with your adviser team and let them know everything going on.  We know personal and business cross over and intermingle, so we will need to discuss some personal issues.  In order for us to help you and save everyone a little time, we need to have a trusting relationship.  We need you to be honest and upfront with all your concerns and issues, and be candid with areas that might come up in the future.

This entry was posted on Thursday, April 23rd, 2009 at 2:05 pm and is filed under Sell Your Business, Exit Stories. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.