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Planning to sell your business? If so, read our guide to fixing issues that may put buyers off. Savvy acquirers conduct rigorous due diligence, and any unwelcome surprises can quickly derail a deal, even if it was near completion.
Our guide highlights ten critical areas, often overlooked by business owners, and provides actionable solutions to ensure a smooth transaction.
1. Inadequate Preparation and Poor Financial Records
Buyers need clear, up-to-date records to assess a company’s value and potential. If they are borrowing money to purchase the business, their lenders may also need to see them. If contracts are missing or the accounts look badly prepared, buyers will have very low confidence in both the management team and in the business itself.
Solution: Get your paperwork in order and create a “data room” that includes print-outs or digital files of all your essential financial and legal documents, including income statements, balance sheets, tax returns and contracts. This makes the team look professional and will make the due diligence process much faster.
2. Lingering Legal Issues
Outstanding legal disputes or unresolved regulatory issues are major red flags for buyers. They don't want to inherit liabilities or ongoing legal battles, particularly if costs could spiral.
Solution: Settle disputes, pay off debts, and ensure you're compliant with all relevant laws and regulations before you market the business for sale. Being transparent about resolved legal challenges is also important, and can even be a positive if you can show the team has learned valuable lessons from the experience.
3. Over-Reliance on Key Clients
If your business relies heavily on a few major clients, it can be vulnerable if these relationships change, which is more likely if key people leave the business.
Solution: Diversify your client base and develop strategies to attract new customers. This will make your business more resilient and attractive to buyers. If this isn’t possible, try to secure longer-term contracts that will give a buyer comfort.
4. Over-Reliance on Key Team Members
If your business is overly reliant on you or other management members, it can appear risky to buyers. They want to know that the business can run smoothly without your involvement and that important clients won’t leave with you. This can be a real issue for businesses where a specific talent is required, such as in the creative sphere, or in service industries such as hairdressing or plumbing.
Solution: Implement a robust management structure by delegating responsibilities, and properly train staff to ensure the same service level will continue if key people leave the business. Agree to a reasonable handover period that ensures new management are up to speed before your agreed exit, and accept that you will need to have non-compete clauses for a specified period.
5. Unsellable Inventory or Assets
Outdated or unsellable inventory can be a significant liability. Having stock that appears to have value on the balance sheet, but which isn’t shifting, is not going to help you sell your business.
Solution: Conduct an inventory audit and clear out any unsellable stock, and make sure this is properly reflected in the accounts. Consider offering discounts or promotions to reduce low-selling stock before any negotiation, and ensure that the business valuation takes this into account. Discontinue any products with high levels of returns or poor reviews.
6. Poor Brand Image or Reputation
A negative brand image or poor reputation will obviously deter potential buyers. For example, if a hotel or restaurant has terrible online reviews, a buyer will need to put in a lot of work to turn things around.
Solution: Address criticisms in online reviews such as poor customer service, required repairs or fulfilment issues. Address any negative reviews or feedback proactively and ask people you know have had a positive experience to add reviews. Never ignore bad reviews or engage in confrontations online, even if the review is unfair.
7. A Negative Approach
Negotiating a business sale can be stressful, and business owners may feel that certain demands are unfair or that the process is overly intrusive. However, if you have a negative, defensive, or untrustworthy attitude, your ability to sell the business will be greatly reduced. Buyers are looking for a smooth transfer and a seller who is willing to cooperate and be transparent. A negative approach raises red flags about potential hidden problems and future cooperation during the handover period.
Solution: Approach negotiations with a positive and open mind. Be prepared to compromise and demonstrate a willingness to work with the buyer to achieve a mutually beneficial outcome. Focus on building trust and fostering a collaborative environment. If you find it difficult to remain objective, consider engaging a skilled negotiator or advisor to represent your interests. Avoid being defensive or argumentative, and always respond to inquiries promptly and honestly. A positive attitude can significantly increase the likelihood of a successful sale.
8. Unrealistic Valuation Expectations
The most common reason investors are put off a sale is due to a seller’s unrealistic valuation expectation. It’s essential that your valuation is in line with market expectations.
Solution: Ensure that financial projections are realistic and based on historical data. Use the services of our business transfer agents to ensure that your asking price is reasonable and be prepared to adjust your expectations if market conditions change.
9. A Drop in Revenues or Profits
A recent or consistent decline in revenues or profits is a major concern for potential buyers. It raises questions about the business's sustainability and prospects. These issues can arise if someone becomes unwell, key members of the team leave, new competitors emerge, or due to issues in the wider economy.
Solution: Identify the cause of the decline and develop a clear plan to address it. If the decline is due to temporary factors, document these and provide evidence of how the business is recovering. Be transparent with potential buyers about the situation and demonstrate a realistic path to improve performance. Consider adjusting the asking price to reflect the current financial performance.
10. Poor Employee Morale or High Staff Turnover
Disengaged employees and high staff turnover rates can indicate underlying issues with company culture, management, or compensation. Buyers may be concerned about decreased productivity, training costs, and the potential loss of key personnel post-acquisition.
Solution: Ask your employees what they’d like to see change to improve their experience and increase their commitment to their job. The last thing a buyer wants is to buy a business with an unhappy team – you need to demonstrate that you have a positive company culture and a stable, motivated workforce.
Not every issue is a deal-breaker, and some apparent weaknesses can be strengths in disguise. For example, a business with solid fundamentals but a weak online presence would give a savvy buyer a simple opportunity to grow the business. Similarly, a lack of investment in modern technology, such as outdated accounting processes, can offer acquirers a way to increase productivity and profitability.
The bottom line is that few buyers will proceed if they discover a nasty surprise, so addressing these key issues before marketing your business is vital. By strengthening your financial records, resolving legal concerns, diversifying your customer base, and developing a resilient management structure, you will inspire confidence in your business and make a successful exit far more likely.
Interested in achieving a successful sale? Get in touch with our business transfer agents to receive a free, confidential consultation and a free valuation service.
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