Business transfers, deals, and exits – they are just as risky as investments and new beginnings. For a minute, you could have your mind relaxing; i.e., endless worry is over.
But trust, that is not the case. The worry, anxiety, and risks persist until the very last second of signing a deal, and hence, you’ve got to be on high alert at all times.
The case is particularly true when it comes to exiting or selling a small business. The world is huge, cruel, and mean. Before you know, you might as well end up handing over your lifelong savings or your heaps of expectations to a greedy mind free of cost. Yup, you read that right.
You might not do it willingly but rather indirectly. You may fall prey to someone’s apparent attire of all-good, and you may fail to notice their hidden, sinister intentions. Or perhaps, their brilliantly-coated failures.
Well, we’re here to level up your guard as high as possible. Here in this article, you will find the top nine warning signs that should set the alarm off for you. These signs are big alerts that your buyer cannot close the deal.
Why Should You Look Out for Red Flags?
Perhaps, to be more accurate and just, the question is: why shouldn’t you look for the red flags? Why should you trust just anyone blindly?
Okay, your potential buyer holds a good reputation in the market. But has he provided you with enough legal reasons to trust? Even if he has, who is to say they might not think solely and entirely for their benefit the next minute? And what will you do if that happens?
Truly, that's a valid question. If you have been immensely careful while running your small business, securing your physical site of operation with guards and security locks and your virtual corner with VPS cloud and servers, then we suggest you continue with this approach until the very end. It is right of you to take extreme measures because it will benefit both you and your future buyer (given that he is sincere). It will keep your little empire, a.k.a, your small business as secure as possible.
When proceeding with your exit plan, continue to do so and take a step ahead; keep looking for the red flags. Open up your eyes and keep the one at the opposite end of the table under strict observation. In case any of the signs mentioned below identify as true or existing, double up your security measures and make sure the other learns not to do this again.
Top 9 Warning Signs
With that said, here are the top nine warning alarming signs that should make it evident that it’s time to take a serious measure.
1. No Transparency
When a buyer refuses to provide you with answers or clarify things you wish to know, pause and think. Why would they choose to do that?
When selling or exiting your business, it’s okay to request access to your buyer’s prior business partners. It’s common, in effect. If they refuse to do so, you should know that something’s off.
2. Slow Responses
No. We don’t mean your buyer should text you back right when you leave a message. What we mean is that they should at least get back to you within their usual frame of response. If they keep on delaying discussions unusually and repeatedly, then it is a big warning sign. Another way to determine whether their responses are slow or if you are only over-analyzing the situation is to compare their responses at the initial stages of discussion with the current one.
3. Vague Term
You are selling or exiting a business. This is a deal and not just a proposal or idea. Hence, you need to have all the terms well-defined, known, and discussed by all involved parties and members.
4. Loop Holes in Funding Plans
Perhaps, any loops holes or question marks will serve as the biggest warning sign. No buyer should be entertained if he is unable to disclose the financial details involved in the transaction or process.
5. Excessively Nice
How would you know if your buyer is being excessively nice to you? Well, it’s simple. You know your business’s worth. If someone’s going miles beyond this or agreeing to all your terms without negotiation, discussion, query, or stuff like that, you should keep yourself alert.
6. Mysterious Acquisition History
As mentioned earlier, as a seller, it’s okay for you to inquire about the acquisition history of your buyer. You need to look into the experience of the prior partners so that you know you’re safe.
7. Vague LOI
LOI stands for Letter of Intent. When finalizing the letter of intent, deals may or may not be specific. It depends on you. However, we suggest getting into the core and specifics of the deal or issue. It will keep you from being in a weak or vulnerable position later on. You need to be as informed as possible at this stage.
8. Lack of Digital Footprint
Digital footprint refers to the online and offline presence of the company's activities. Be it in the form of news or the latest self-published update. You need to have at least some degree of digital footprint for the sake of reliability. If not, question your buyer. If they fail to provide you with that too, there you go! You know this is a warning sign, back off.
9. Hasty Offers
If the buyer is setting up exclusivity offers saying they will pay a higher price if you sell or exit your business within 45 days or any time frame set by them, then there may as well be something fishy. And that is particularly true if they step down from their proposed offer after a few days.
Summing up, we would recommend you not to rush. You want to get over with things or want a quick reward, but know that you are getting neither if you do not hold back your horses. The entire process of selling or exiting your business safely and properly will take some time. Give it that and keep yourself safe from the potential damages of these warning signs. That’s all it takes, and you’re good to go!