5 Deal Breakers That Will Keep You From Selling Your Business for a Good Price
For some entrepreneurs, the end goal is to sell the business. Some merely want to achieve financial security, while others will use the cash as capital for another venture. Whatever your reason, you will need to be careful. You need to make sure that your business has no deal breakers that can prevent would-be buyers from choosing your company. Here are five of those deal breakers and how to fix them:
1. Unprotected Intellectual Property
When people buy a business, they expect to own everything in that business, from its products to its client list. However, some entrepreneurs forget to protect what the startup should own, such as trademarks and copyrights. Failing to protect intellectual property can limit the price of your business at best and kill deals at worst.
Hire a lawyer to ensure that all intellectual property applications are in order. You should also ensure that those applications and rights are transferable if the business is sold. Working with freelancers, for example, can result in muddied ownership if not legally secured, leading to legal issues down the line. You should also ensure that all software purchased is still legally usable by the company.
2. Unresolved Liens
You may be a responsible entrepreneur who sorted your loans before putting up the company for sale. However, your responsibilities do not end there. You need to ensure that the creditor has released the lien. Solving that problem is a matter of creditors double-checking that any and all related liens have been released.
3. Missing or Incomplete Records
One of the best ways to ruin the sale of a business is to simply have incomplete records. Not having an accounting of your income or thorough inventory tracking can leave would-be buyers worried and suspicious. They cannot trust your company’s profits claims if it cannot even have its records in order.
It’s best to have all records constantly updated. Not only will that help you sell your startup, but it will also help you run the business more smoothly and efficiently.
4. Issues with the Team
If there is anything that can quickly sour the sale of your small business, it’s problems with the team. Numerous personnel problems, from team members refusing to work for new management to people outright leaving and starting competing businesses, can crop up without you realizing they were an issue.
You need to not only incentivize existing team members to stay on but keep them from competing with the current company or joining the existing competition. Non-competes may be difficult to enforce, but they are worth a shot and can handle the latter issue. The former can boil down to compensation, such as phantom stock or cash.
5. Unwritten Agreements and Contracts
There will be times when you will make handshake deals with manufacturers and sellers, and while not ideal, it does happen and can help get your startup off the ground. However, leaving those agreements unwritten can cause trouble when selling your small business. It can be difficult to convince possible buyers of how the startup functions if you have no written contracts with manufacturers or sellers.
Get everything into writing from the start. That is the only way to ensure you don’t forget any critical deals or set-ups. You should also ensure those contracts are transferable and apply to the purchaser, as well, once the deal is closed.
Selling your business is a difficult endeavour, but it is far from impossible. With due diligence, you can resolve this part of your entrepreneurial journey at a great price.
