Balancing Honesty and Optics: Ethical Considerations When Selling Your Business

December 16, 2024 | by Keith Yeater

As the owner of a successful manufacturing company, John had poured his heart and soul into building the business over the past two decades. Now, with retirement on the horizon, he faced the daunting task of selling the company he had nurtured from the ground up.

John knew that first impressions were everything when it came to attracting potential buyers. So, in the months leading up to putting the company on the market, he worked tirelessly to spruce up the facility, optimize processes, and present the business in the best possible light. New paint, reorganized workspaces, and a fresh coat of “lean” branding—John was determined to make his company shine. 

But as John met with prospective buyers, he found himself wrestling with an ethical dilemma. Should he be fully transparent about the company’s challenges and areas for improvement? Or should he focus on emphasizing the positives and putting a polished veneer on the operation?

Careful Navigation

It’s a common quandary and one that requires careful navigation. On one hand, the temptation to “put lipstick on the pig,” as the saying goes, is strong. After all, the goal is to maximize the company’s perceived value and fetch the highest possible price. Buyers will be scrutinizing every aspect of the operation – why not present it in the most favorable light?

On the other hand, being dishonest or misleading can backfire spectacularly. Savvy buyers will likely uncover any underlying issues during due diligence, and the fallout could derail the entire deal. Not to mention the damage it could do to the seller’s reputation and legacy.

Striking the Right Balance

As a consultant, I’ve found that the key is finding the right balance between putting your best foot forward and maintaining transparency. You want to accentuate the positives and address any weaknesses proactively, but you can’t cross the line into outright deception.

Here are a few guiding principles I share with clients in this situation:

1. Prioritize integrity over short-term gain. While the temptation to inflate metrics or gloss over problems may be strong, it’s simply not worth the risk of getting caught or damaging your reputation.
2. Highlight your genuine improvements. If you’ve genuinely made strides in areas like operational efficiency, quality control, or customer satisfaction, showcase those enhancements proudly. Just be sure you can back them up with data.
3. Acknowledge challenges honestly. Don’t be afraid to acknowledge areas that need work, but frame them as opportunities for the new owner to build upon your foundation and take the business to the next level.
4. Enlist third-party validation. Bringing in an objective expert, like a management consultant or financial auditor, can lend credibility to your claims and demonstrate your commitment to transparency.

 A Clear and Honest Picture

Ultimately, it’s about striking the right balance. By highlighting the company’s genuine strengths and improvements, while also being upfront about areas that need work, you can give potential buyers a clear and accurate picture of the business – warts and all. This sets the stage for a successful transition and helps the new owner hit the ground running.

As I’ve seen in the case of John and many other clients, this approach pays off. The sale goes through smoothly, and the seller can retire with the satisfaction of knowing they upheld their principles, even in the face of temptation. After all, a good reputation is the most valuable asset any business owner can possess.