Is Your Business Transparent? by Paul Corrigan

Whenever an owner makes the conscious decision to sell their business, the next step is to prepare, market, and present the business to prospective buyers. Invariably, there are a few skeletons somewhere in the closet. While many a homeowner can and does paint over a reoccurring crack in the ceiling to “dress up the place”, this tactic almost never works to a seller’s advantage in a business deal.

Why? The typical business sale is reviewed by many different specialists, each of whom looks at the entire picture from a unique perspective. Attorneys, accountants, appraisers, lenders, and others may have a vested interest and/or a potential liability requiring a thorough due diligence on the project. The result is that an item which is not disclosed, never mentioned, or purposely covered up, is inevitably discovered at some point by someone. The later this discovery occurs in the sale process, the larger the issue looms and the deeper a hole in confidence and trust may grow. Thus, a seller can expect additional reporting, delays, negotiations, concessions and costs (particularly from outside professionals) to complete the transaction. In extreme cases, the whole deal may be cancelled.

Aren’t caveat emptor and “taking the Fifth” the standard mantras of business? Absolutely not! Nearly every signed document and all representations by associated professionals have warranties that the seller has disclosed all pertinent information to the best of their knowledge. Obviously, non-disclosure of, say, a chemical spill on real property could cause rescission of the contract and even legal action against the current owner. But even failure to discuss an employee who is known to be leaving in the future often leads outside parties to think “What else don’t I know about this business?” Now positions on all issues may stiffen and further hurdles are created to help ease the rising tide of uncertainty. However, if the initial discussion on employees included, “You know, Joe may be leaving the firm if his spouse takes that new job…”, a buyer looks for a solution as often as not. “Well, my brother-in-law would be great in that position. That won’t hold things up.” Now both sides take a more solution oriented approach to the negotiation.

But what if a unknown problem pops up? Of course that happens, but that is why a a pro-active stance helps discover business skeletons before someone else does. For instance, go to the state Revenue department and Disability Department and make sure your business is up-to-date by obtaining Certificates in Good Standing. Get a check on your UCC lien status. Many transactions are held up because an old paid-up unsecured debt has never had the UCC lien wiped off the books. If the lending institution no longer exists (very common today!), it can be a lengthy process to clean up these records.

Talk to an experienced business broker about what issues may affect the sale of a business. He will know what questions and information a buyer is likely to request. Being prepared for such questions and having quick access to desired information presents a business as responsive and capable. The more you see, the more you get. And doesn’t that just make a business all that much more attractive?