Sheehan & Associates, P.L.C.

Mistakes that can reduce the value of a business

Small business owners in Michigan should be aware of several mistakes that can hurt the value of their business when they wish to sell it or it becomes part of a buyout. Experts say that poor seller planning is one of the top reasons that deals fail to be completed. There are several ways, however, to keep a business from falling into this trap.

Not owning the entire company can be a crushing blow to the value of a business. Owning a business does not just mean the operation itself. Business owners should make sure they are single owner of the business name and logo, web domain and even the phone number. Another common issue is contracts that cannot be transferred. Sometimes established clients will protest working with a new owner, so it is important that any contracts can be assigned to the purchasing company.

Missing records and late financial reports are two other issues that can reduce the value of a business. Lost contracts are a common type of missing paperwork, and not having all contracts available for an interested buyer can be a barrier to a sale. Many small businesses produce their own financial statements and it is important that they are uniformly produced between the 15th and 20th of each month. This is a mandatory requirement if the business is being sold to a public company or a private equity group.

Avoiding these mistakes may help a business owner negotiate a sale more smoothly. However, keeping track of such documentation may be difficult without professional assistance. A business owner who is planning on selling a company might work with a lawyer who could help to gather the necessary documentation for the transaction.

Source: Forbes, "Five Critical Mistakes That Kill The Value Of Your Small Business", David Ryan, June 27, 2014

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