Many entrepreneurs dream of growing a business quickly so that they can sell it for a handsome profit at some point. However, many of these motivated individuals may not quite realize just how difficult the growing and selling processes actually are. Even the most successful businesses have had trouble finding and closing favorable deals, as seemingly trivial issues can become quite significant once it is time for everyone to sign on the dotted line. It is important to go into the sales process knowing exactly where the business stands and precisely what sort of things to expect from any prospective buyers. Here are some of the key things to consider before jumping into the complex process of selling a business:
Performance Matters, Not Just Potential
There are plenty of companies with great ideas, workable business models, and the potential to do amazing things. Although investors no doubt love to find and acquire businesses that have a great deal of potential, the fact that a company simply has potential is not going to suffice when it comes to sealing the deal. Granted, it certainly helps if a business can show that it is on its way to attaining certain metrics and benchmarks, but there will have to be concrete data on the company’s performance as well. It is simply unrealistic to think that a business will sell on the mere probability that the business will perform, no matter how great that probability is.
Profits Trump Revenue
During sales pitches, company leaders like to tout any impressive numbers, such as their existing client base, future projections, or the previous year’s revenue. These numbers are certainly important, but they will never take precedence over actual profits. It does not matter how much money a company is bringing in if they are not able to spend wisely. It is certainly possible that a larger enterprise can acquire a business and cut down on expenses, thereby increasing the profits. Nonetheless, the decision to purchase a business will largely rest on the profit structure at the time of the purchase, so managing money well prior to a sale is vital.
Credibility is Paramount
As with most large scale transactions, selling a business is going to require a fairly detailed and lengthy due diligence process. A lot of documents and information will be exchanged and scrutinized, and much of this data will be verified with previously reported facts and figures. This is obviously done so that a purchaser is assured that it is receiving that for which it has bargained. Of course, given that most of the financial documentation will be examined with a fine tooth comb, it would be beyond foolish to inflate projections or conceal any past dealings. Any information that is furnished during the initial negotiations must be both credible and verifiable.
Transparency is Expected
The merging of businesses often entails the merging of company personnel, property, accounts, and so many other components of a business, both large and small. For many companies, having a few skeletons in the closet is virtually unavoidable. There may be past litigation, outstanding compliance matters, or any number of other potential issues that could prove problematic. Of course, a few problems or conflicts are to be expected, but it is whether and to what extent this information is shared that will really have an impact on whether a deal goes forward. It is imperative for companies to be completely transparent from the very beginning to avoid having a deal implode at the last minute.