Buzz Harris: Credibility in business sales works both ways (Voices)

“I want a one-armed economist so that the guy could never make a statement and then say, ‘on the other hand...’” — Harry Truman

Lately, I’ve spent a lot of time writing about the importance of credibility when helping buyers and sellers with small business acquisitions and sales.

One of the large hurdles is determining who is a real buyer and who isn’t.

Sellers don’t like it when buyers waste their time, nor should they expect buyers to like it when they waste their time.

To alleviate these types of problems, sellers need to give serious consideration to the following issues.

The first thing a seller must understand is that now is the time to sell. If there’s a disconnect between the business’ current financial performance and the owner’s expectations, one or the other must be adjusted.

Upon determining that the business does have some legitimate value, the owner must make a decision if they really want to sell their business.

Unfortunately, we have seen situations lately where business owners had unexpected potential gross revenue increases, which has given them second thoughts about selling their business.

Ironically, these same owners were very concerned (and rightfully so) that a buyer would succeed as the owner and make good on paying off their note.

The result of this has been sellers losing their credibility with legitimate and motivated buyers.

Instead of seeing the potential positive revenue increases as security for their note, they see it as a reason to hold onto their business in hopes that these revenues materialize.

A seller must also know their reason(s) for selling. It is typically one of the first questions a buyer will ask.

Ideally, it’s much better when the reason(s) are not urgent. This is why it is better to sell when times are good rather than burning out when they aren’t.

Sellers also need to get their books in order. Prospective buyers want to see at least three years of tax returns and profit and loss statements.

As part of getting their books in order, sellers need to understand their business’ true cash flow. Since most businesses claim a variety of non-operational expenses (i.e., personal medical expenses, personal auto lease, etc.), owners must make certain they have supporting documentation for these.

Sellers must also make sure that all their legal commitments are in order. For example, if a business’ location is key to its performance, a long-term lease with options would be important to a buyer.

Another issue sellers need to be aware of is their role in the business. If the seller is absolutely vital to the business, they need to make sure they have taken steps to delegate their responsibilities to key staff members, especially those related to customer relationships and revenue generation.

And finally, as simple as it sounds, when a buyer is coming out to see a business for the first time, it’s important to make a good first impression. Buyers look for companies that show well because it can often be indicative of a well-run business.

Buzz Harris, a Licensed Business Broker with The Liberty Group of Nevada, writes a recurring Voices column for the Northern Nevada Business Weekly. Contact him at 775-825-3948 or via email at BHarris@TheLibertyGroupofNevada.com.