The Fly in the Ointment - Lead with the Problem
Honest Sellers Finish First: The Case for Early Disclosure
When selling a business, most owners naturally want to highlight its strengths. Growth potential, profitability, loyal customers - all the good stuff. But what about the negatives? The challenges? The risks? Too often, sellers hold back on these, fearing they will scare buyers away. The reality, however, is quite the opposite.
Why Transparency Matters
No business is perfect. Every company has its share of weaknesses…be it client concentration, outdated systems, staff dependency, or regulatory risks. Buyers expect to uncover issues during due diligence. When they do, if it appears that these were hidden or downplayed, trust erodes. This can lead to price reductions, deal renegotiations, or even the collapse of the sale.
Control the Narrative
By proactively addressing potential concerns, you maintain control of the narrative. You set the stage for a constructive discussion rather than a reactive one. If a buyer discovers a major issue late in the process, they may assume the worst – that the seller was being deceptive or that the problem is bigger than it seems. However, if you introduce the issue early, you can frame it appropriately, explaining not just the problem, but also the plan (or potential solutions) to mitigate it.
What Buyers Appreciate
Buyers value honesty. When a seller is upfront about the challenges in their business, it fosters confidence. It shows the seller has nothing to hide and understands their business inside and out. More importantly, it allows buyers to assess the situation realistically and move forward with open eyes rather than lingering doubts. Additionally, it helps qualify buyers correctly early on – if they know the issue and still want to proceed, you have already overcome this hurdle before it becomes an undisclosed surprise later, which could significantly erode trust.
Examples of Common “Flies in the Ointment”
Staff Dependency
Key Personnel Reliance: If the business is overly dependent on a few key employees, turnover could disrupt operations and impact business continuity.
Systems & Processes
Technology or Process Gaps: Outdated systems, inefficient workflows, or lack of documented processes can create operational hurdles for new owners.
Legal Exposure
Pending Legal Issues: Any unresolved lawsuits, disputes, or regulatory concerns should be disclosed early to avoid complications in the sale process.
Compliance Risks
Regulatory & Compliance Gaps: Failure to meet industry regulations, licensing requirements, or financial reporting standards can derail a deal
Financial Transparency
Unclear Financials: Inconsistent bookkeeping, undisclosed liabilities, or revenue recognition issues can create uncertainty for buyers.
How to Lead with the Problem
- Acknowledge the Issue: Be clear and concise about the challenge.
- Provide Context: Explain why the issue exists and how it impacts the business.
- Present Solutions: If you have already taken steps to address the issue, highlight them. If not, offer without hidden landmines along the way.
So, if you have a “fly in the ointment”, don’t wait for the buyer to find it. Address it upfront, and you’ll position yourself as a seller worth doing business with.
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