Honesty When Selling a Business!

In my career as a business broker I noticed that if there is only one virtue that would dramatically increase the chances of selling a business at the highest possible price and within the shortest period of time, it would be honesty.

Honesty with business brokers: serious business sellers use the services of competent business brokers to sell their companies. Business brokers will use the information provided by the seller to present the business at its best lights to the right buyers who are most likely to present serious offers. What happens when sellers misrepresent or exaggerate their companies advantages to business brokers? The answer is very simple: the business is presented to the wrong buyers. Brokers put their best efforts to convince these buyers that the business presents a good opportunity for them.

When an interested buyer presents an offer that seller accepts, he/she start their due diligence only to discover that the business was misrepresented. The buyer loses confidence in the seller and in the broker and starts questioning all information provided to him/her. Worse, the buyer feels deceived and realize that they cannot work with the seller anymore. The obvious outcome is: the offer is withdrawn and the buyer gets back his/her deposit. This is a huge waste of time for the seller, the buyer and the broker. It’s a lose, lose, lose situation. Had the seller presented a more realistic picture of the business, the same buyer might still have been interested or another more suitable buyer might have been found. A lot of time and professional fees would have¬† been saved and the business would have been sold.

Honesty with buyers: when investigating a business to purchase, most buyers have a prepared list of questions and want to get answers directly from the seller. Most buyers understand that no business is perfect and expect the business to have some drawbacks. If the seller starts embellishing the business to the extent that it seems perfect, buyers automatically question the seller’s honesty. Trust is lost very quickly during the discussion and the business seems too good to be true. Of course the buyer loses interest and the seller loses the opportunity to sell the business to that buyer.

Honesty with employees: nobody suggests to tell employees about the possible sale of a business early when the business owner is contemplating selling his/her business. However,  at some point of the sale, key employees should be made aware. It is generally a very bad idea to lie the them about the subject for the simple reason that when they will know (and they will know) the will lose faith in the present owner and in the business. They will assume that the owner lied about many other matters and they will look for alternatives to their present job and/or revenge. The same employees could sabotage the deal by presenting a bleak picture of the business to the buyer and push him/her to walk away from the deal.

honesty is a virtue when doing business and almost always pays off. This is even more true when selling a business whether small or large.

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  1. From Selling a business Info - Due Diligence When Selling Your Company on 25 Jun 2009 at 5:02 pm

    […] almost impossible to hide an important fact about the business to a savvy buyer. In this case honesty does […]

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