Selling your business? Avoid deal killers

Selling a business can be tricky in any economy, but more so in a depressed environment like the present, where lending is tight and profits are down.

With so many factors that can potentially kill a deal, businesses need to work harder these days to make their companies more sellable, experts say. The more sellers can do to clean up their business before courting a potential buyer, the better off they'll be.

"To me an ideal client is someone I start talking to three years before they're really ready to sell," says George Hubner, president of Landmark Business Ventures, Hauppauge-based mergers and acquisitions advisers.

This gives the seller more time to eliminate some of the eyesores and fix some of the problems that could potentially kill a deal, he notes.

Potential deal killers
1. Overpricing. One of the biggest mistakes sellers make is not having an accurate value of their business' worth, Hubner says. "Sometimes they base the value on how much they need to retire rather than what it's worth," he explains.

2. Poor management depth. Oftentimes, the business is too dependent upon the owner, Hubner says. Try building in some additional management and structure within the organization and document procedures/policies, so the business is transferable to a new owner.

3. No skin in the game. In this tough lending environment, sellers have to be willing to provide seller financing in a lot of cases, says Anthony Citrolo, co-managing partner of New York Business Brokerage in Melville. "The average buyer is looking to put down 35 percent to 40 percent on the deal," he says, with the remainder being paid out to the seller over a period of time. "Buyers are reluctant to do all cash."

4. Losing key employees. Before a sale you should have in place noncompete/stay agreements with key employees, explains Tony Calvacca, co-managing partner of New York Business Brokerage and president of the New York Association of Business Brokers. Buyers will shy away from a deal if they think employees will leave and take business or clients with them, he notes.

"You should have noncompete agreements with all key employees who have customer contact," advises Nick Vernola, marketing manager of private brands and marketing team medical adviser at Henry Schein in Melville. This was key when Vernola sold his Ronkonkoma-based company, Ocean Medical Supply, to Henry Schein a year and a half ago, particularly as it related to Ocean's sales team.

5. Lacking a transition plan. It needs to be understood what the seller's role in the business will be once the deal concludes and how the transition will take place, says Vernola, who used Hubner to sell his business. "You have to work out the transition ahead of time," says Vernola, who, along with his brother, Tony, agreed to stay on at Schein.

6. Having a short, nontransferable lease. Particularly if you're selling a business that relies on site loyalty, like a restaurant, you want to make sure you have a long-term and transferable lease, at least five years, says Barbara Findlay Schenck, a Portland, Ore., business consultant and author of "Selling Your Business For Dummies" (Wiley; $24.99).

7. Covering up problems. Be honest, Schenck says. "Almost every buyer conducts a due-diligence investigation," she says, so if you're looking to mask problems, chances are they'll be uncovered anyway during this process.

8. Dragging your feet. If you can't respond quickly to a buyer's questions or offer, consider hiring a business broker to help with the sale, Schenck recommends. "Delays kill deals," she says.