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By Holly A. Magister, CPA, CFP®

Without a single doubt, there is only one obstacle or "deal breaker" that I have come across over the years that is insurmountable.  And it always surprises the Seller.  "What could that be?" you are wondering.

Well, before we get to that, let's talk a bit about what makes a business valuable after the business owner implements a successful exit strategy and departs for her golden years in retirement.

A buyer wants a business that will sustain itself in good times and bad.  Recently, we all have learned what "bad times" feel like in more ways that most of us can count.  Those bad times have brought havoc to virtually every industry across every nation.  Long term sustainability requires a business cash flow to have a "quality" about it.  Positive cash flow is not sufficient; instead it must be cash flow with quality.  We will cover the subject of cash flow quality in a subsequent article.  

A Buyer wants a business that is not riddled with conflicts, lawsuits, and the like.  Essentially a poor reputation in the marketplace and local business community is very unattractive.  Nonetheless, it is typically not a deal breaker.  Many Buyers will take on such a challenge hoping their own ethically sound business practices will repair and rejuvenate the business and its future prospect for success.

A Buyer wants the Seller to be truthful about its past operations and future opportunities.  This is why we recommend you hire the best accounting firm you can afford to assist you in preparation of your financial statements if you intend to sell your business in the next three-to-five years.

A Buyer wants to know that the day the successful entrepreneur receives her equivalent to the corporate “golden parachute”, that the business will continue to operate without a misstep.  Indeed, this is where many deals break down. 

In all my years working closely with successful entrepreneurs, I still find it highly unusual to find one truly preparing their business for that day.  Most entrepreneurs are very good at doing many tasks.  You know them too...Jack (or Jane) of all trades!   It is their innate ability to do many things well that gave them the courage and energy to start their business in the first place.   No one is better suited to succeed in a business endeavor than someone who can handle many tasks coupled with endless stamina.  And for most founding entrepreneurs, delegating anything to others is difficult at best!

Regardless of the stress that delegation to others may cause the entrepreneur, it is wise and necessary to begin the process of delegation sooner than later.  When a buyer looks seriously at a business for its long term financial opportunity, they want a business that operates without the founder.  And they want to know that it has been operating without the direct contribution or efforts from the entrepreneur for a reasonable period of time. 

When the situation is not one where the business operates through the efforts of key management and other employees, many buyers lose interest and walk away.  If they are willing to take on the challenge to replace the efforts and talents of the entrepreneur post sale, the price paid for the business is either reduced or contingent on the future success of the business.  Neither consequence is a good one! 

Unfortunately, when the Entrepreneur receives negative feedback from a potential buyer regarding the need to “replace” the entrepreneur, they often say “I wish I knew the importance of this issue years ago”.   Don’t underestimate this matter and be one of those disappointed entrepreneurs.