Should I factor pre-closing fixes into my asking price?

A known repair or defect puts a seller in a position to choose. You can fix it before the sale, tell buyers about it and let the price reflect it, or say nothing and hope it is not found. BDC’s guidance is a reason to doubt the third option: it says a potential buyer will see what they will have to spend on the business. Which of the first two suits you is a question for your advisors.

What BDC says buyers notice

In BDC’s guidance on negotiating the sale of a business, BDC Advisory Services senior project manager Patrick Hagarty says a potential buyer will see what they will have to spend on the business, whether that is a leaking roof or defective equipment. Anything not up to par, he says, is an opportunity for a buyer to start creeping the price down. BDC adds that significant price adjustments typically occur during the buyer’s due diligence period.

Fix it, or price it

BDC says the spread between an initial offer and the final price is often narrower and more predictable when the seller is well prepared. That favours finding problems yourself first. It also describes buyers who find problems in due diligence and respond with price chips or changes to deal terms, such as holdbacks or funds in trust. Compare the cost of a fix with the risk of a price reduction or a holdback on the same item, and ask your accountant how each choice shows in the financial statements.

Disclose what you know

BDC says that if a seller has been transparent through the stages leading to the final offer, there should be little difference between the ask and the offer. Raising a known issue early lets you present it with a quote or a plan. How a problem is described can also matter in the purchase agreement, so see representations and warranties vs indemnities. Your lawyer can tell you what to put in writing.