Do Not Change Business Model While Selling

When selling a business, it is important to keep the attributes that made the business successful in the first place intact.  It is not the time to cut marketing and sales efforts to save money or decide to semi-retire, change employee pay plans, or stop paying bills. Sometimes sellers think they are safe making these alterations after an offer has been accepted, forgetting that a closing may be months away or that a deal can collapse when revenues suddenly drop or fixed expenses change significantly.

Businesses are typically priced based upon the net owner benefit that the business provides.  Both the buyer and lending institution want to be comfortable that the historical net owner benefit can continue after transition.  As such, they will ask for current financials just prior to closing to ensure that there have been no significant changes to the net owner benefit.

Recently, when reviewing a client’s financials, we noticed that various projections were not being met. Revenues were off slightly, but expenses had dropped fairly dramatically. Well, the seller explained that he had stopped his marketing and advertising several months ago. Revenues for future orders were being represented as income, but none of the offsetting direct expenses were being shown.  The reality was that backlog had decreased substantially. This caused several interested buyers to walk away.

To ensure you get full value for your business, you should contact your Apex Business Advisor for expert advice.

Doug Hubler
President