If you have ever sold a home, you can sell your business
Owning a business in a small town has many benefits, but one of the drawbacks is the difficulty of finding a buyer for your business when you decide its time to move on. The pool of potential acquirers is smaller and capital for buyers is harder to find. But if you understand the process of selling a business, then you can take steps to minimize the barriers to selling your company.
Selling a home and selling a business are remarkably similar tasks. If you’ve ever felt intimidated or confused about the process of selling your company, just think of the transaction in the same way you would if you were selling your home. This is the third in a multi-part series. Start reading with Part 1 now.
Step 6: The inspection
When you agree to an offer to buy your home, it is often contingent on a home inspection. A home inspector will come to your home and examine every inch of it—the shingles on your roof, the wiring in your electrical panel, your furnace, your plumbing…. You can expect that a home inspector will find that mold you tried to hide behind a shelving unit in the basement and the leak in the skylight on the third floor. His or her job is to find any and all of the problems in your house so that the buyers can either be assured that they are not purchasing a lemon of a house or at least have fair warning about issues that may arise.
When you agree to an offer to buy your business, the buyer will need to complete his or her form of inspection, known as “due diligence,” before the offer is finalized. The buyer will send in a team of people whose job it is to validate the claims you made in the management presentations and your marketing materials and to uncover any inconsistencies between them and reality.
Home inspectors are usually engineers. Due diligence folks are MBA-types who have a passion for detail and an insatiable appetite for data. You probably won’t like them—after all, their job is to expose your business and its faults. They will ask for all of your customer records and history, your financials, your budgets and business plan. They’ll want to pore over your employee records and review your marketing collateral. Every nook of your business will be dusted and inspected for cracks while the MBAs look for details that don’t add up.
Just like a home inspector will find things, the MBAs will discover information or facts that may not show your business in the best light. Relax. Every business has warts, and assuming you did not lie in any of your offer materials or presentations, it’s natural for the buyer’s diligence team to find them.
The buyer may ask for a discount based on what the MBAs discover during due diligence—just like the home buyer asks you to fix a leaky roof or pay for it to be fixed if the home inspector finds one. It will be up to you either to accept the discounted price or to start the process over again.
I spoke to Brad Bottoset the owner of Reno-based business brokerage The Liberty Group of Nevada. Brad’s firm often represents sellers from small towns and agreed on the importance of being honest during the diligence process: “If something has been misrepresented by the seller, even if the error is not intentional, it can kill the deal.”
If you get through diligence without incident, the buyer will schedule a closing meeting at which you will need to sign a number of documents (typically at the buyer’s lawyer’s office). Once all the documents are signed, the deal is done!
If selling your business seems daunting, don’t be intimidated. The process is very similar to selling a house and can be much more rewarding.
John Warrillow is the author of Built To Sell: Turn Your Business Into One You Can Sell. Find out if you have a sellable business – and what you could get for it – by taking the 10 question Sellability Index Quiz at www.BuiltToSell.com.
[John, thank you for a truly outstanding series. We appreciate you sharing your expertise. – Becky]