Selling a business has many challenges, which is why it’s important to consult with a professional business brokerage/M&A firm. Below are just two samples of potential challenges Sellers should consider looking into prior to listing their business for sale:
Liens
It’s time to do a little digging. Think back about your financial and business growth. When did you last apply for a small business loan? Equipment financing? When did you last take a close look at your company’s finances? If you closely track every dollar spent, you will know exactly where your money goes. However, if you take a more hands-off approach, you may discover a lien against your business or a business asset unexpectedly.
It is critical to know about these liens before you begin selling your business. As part of the sale process, the lending bank or buyer’s attorney will investigate your business to find out if there are any liens. You could have gone years without realizing that someone filed a Uniform Commercial Code (UCC) lien against your business. While there is nothing good about a lien, it isn’t always that big of a deal. The most important thing is to deal with it right away. Find out who filed the lien, why, and what you need to do to deal with it. Then, get the liens released, prior to transferring your business to the buyer.
What is a UCC lien? Banks, lenders, or creditors use a Uniform Commercial Code lien to protect their interests if you file for bankruptcy or default on a loan. If you have ever taken out a small business loan, then the lender probably filed a UCC lien against you. In fact, the lender is not even required to tell you that they have done so. This isn’t about missing payments or defaulting on a loan. In fact, even if you have paid back your loan in full or returned the leased piece of equipment after the lease ended, it is possible that a UCC lien against your business may still exist.
We always suggest, during the initial stages of preparing your business for sale, have your attorney perform a lien search. Therefore, if there are any mysterious liens, you will have time to resolve the liens, instead of having to deal with it at the last minute and inevitably set back the timeline for closing the deal. The longer the deal unnecessarily drags on, the more the buyer can grind and potentially, the deal blows up.
Environmental Issues
Another challenge to the success of a business sale may be the property it sits on. Perhaps you’ve agreed on a price and gotten through due diligence for both the business and the real estate. The bank financing the deal provides a commitment letter that contains several contingencies.
One requirement is providing a clean environmental report for the property. The bank orders this Phase One report, which includes a visual inspection and a review of public records on the property’s environmental condition and surrounding areas. There will also be questions about environmental practices for the current and former operators.
A property inspection may uncover issues like leaking underground storage tanks, asbestos, radon, lead paint, or contaminated soil or groundwater. Detecting any of these problems often requires further inquiry through a Phase Two report. This would involve testing for contaminants in soil and ground water.
What happens if inspectors find oil tanks buried under your property? They may have been there for years, and you didn’t even know about them. They represent a potential leakage problem. Unexpected environmental problems like this can turn a good deal on its head. The bank and the would-be buyer will want the environmental problem to be resolved. You’re going to have to pay for it. Resolving the problem may add weeks to the timeline of the deal.
Businesses should address any environmental issues before putting the company up for sale. Resolving such problems, before or early in the sale process, will mean a more routine transaction. Delaying resolution of the environmental issues will mean delay in consummation of the deal or potentially killing the deal, especially if the repairs exceed the agreed upon time to resolve them.
Feel free to download our Whitepaper which discusses popular options for selling a business.
If you need help putting together a strategic plan, please contact the Benjamin Ross Group at 215-357-9694 to speak with a professional business broker who can help you start the process.
