When people get ready to sell their businesses, there is a natural inclination to talk up their business to make it seem attractive in the eyes of the buyers. Whether a seller has been preparing to sell their business for years, or he or she receives an unexpected offer, this tends to be the case. It’s only normal that a seller will have the inclination to build up their business and make it seem as flawless as possible.
It’s an interesting dynamic to consider, because while sellers are motivated to convince prospective buyers to take action, they also need to remain honest. When sellers try to hide or cover up a company’s flaws, it can definitely come back to haunt them. After all, almost all buyers will be taking ample time to determine if claims are valid and to investigate the business for themselves.
It’s a Two-Way Street
Along the same lines, sellers will want to trust that buyers are reputable and qualified. After all, why waste time dealing with a prospective buyer who is not serious about buying or qualified to do so. Honesty is essential on both sides of the transaction.
Honesty and Transparency
Before signing on the dotted line, buyers will take a deep dive into a company’s stability, finances, and potential for growth. If along the way a buyer finds a flaw that was not disclosed, it will negatively impact the seller’s credibility and can jeopardize a deal. The fact is that if the seller’s honesty ever comes into question, even the best deals can quickly fall through. Unfortunately, deals can fall through even when business owners fail to disclose issues that they consider relatively minor. After all, it’s possible that a buyer will have a different interpretation of the relevance of those flaws.
So, what is the best way to proceed? When both the buyer and seller are transparent, it works to dramatically improve success rates. This means that all parties involved should seek to be open about the risks, but also be clear about potential solutions. When this goal is achieved, it always benefits business transactions.
How to Build Trust
If a seller finds out that one important thing was not disclosed, suddenly every single statement made raises skepticism and concern. As you might imagine, that will jeopardize the chances of almost any deal succeeding. That’s why sellers and their representatives should be clear about any concerns and put them on the table along with potential solutions.
Consider if the business could run into problems down the line and share those details with buyers, but also present possible resolutions. Think about if you’ve made mistakes in the past with the business that could circle back and become an issue for your buyer. But it is essential to be proactive about sharing not only problems, but also ways to solve those problems.
Again, be sure to be clear and transparent about those issues and also how they could be resolved. Try to put yourself in the buyer’s shoes and think about every single issue you would want to know about before purchasing the business.
Maximizing Success Rates
When the guidelines described in this article are followed, sellers will see their odds of success increase. Trust is an undeniably large part of the equation. Sellers need to go against any instincts they might have to hide information, and instead be as forthcoming as possible. After all, once trust is broken, little can be done to rebuild it.
One thing that business brokers and M&A advisors constantly see that works against deals of all sizes is surprises. While surprises may be welcome in other areas of life, the truth is that they have no place in the world of buying and selling businesses.
Michael J Schwantes is President & CEO of Creative Business Services/CBS-Global.
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