Common Errors to Avoid when Selling a Small Business
Entrepreneurs spend years building up a business, in hopes of one day selling it and reaping the rewards of their hard work. Yet, many small businesses put up for sale never find a buyer. And when the business does sell, owners often walk away with a payout less than they expected. This is a common theme if a business owner isn’t experienced in the sale of a business. Here are some common mistakes to avoid when selling a business:
Lack of preparation
The best time to sell is when a business is thriving. Insufficient preparation is the most common mistake that small business owners make. In reality, the time to start preparing a business for sale is at least two years before the business is listed. It is important to address several key factors of your business before listing it in the marketplace. Things such as financial documentation, staffing problems, and leasing issues impact the sale of a business, as well as the price the business will command. Keeping updated records, a detailed business history and sales portfolio on hand at all times, will make planning much easier. Waiting too long, or not planning in advance, can cause business owners to miss their window of opportunity.
Many inexperienced business owners set a price too low for the sale of their business, missing out on a higher payout. But, it is just as common for business owners to overvalue their business’ worth. Overconfidence can lead a business owner to overlook activities that are necessary to make a business sale a reality. Obtaining a business valuation is crucial and helps ensure the business owner gets a reasonable price for his or her business. Many business owners also overlook the costs associated with selling a business, such as taxes and fees.
Failing to consult a business professional
Selling a business is a complex and time-consuming process. Many business owners underestimate the process and think they can do it all themselves. Experienced buyers will assume an advantage if a business seller has no professional representation. A seasoned business broker can help facilitate the selling process, acting as a buffer between the seller and the purchaser. During a business sale, negotiations can get tough. Having a business broker on hand can help ease this tension without frustrating the buyer, as there may be a need for the seller to work with the new owner during the transition.
Business is too dependent on the owner
Small businesses that are too dependent on the owner can affect the results of the business’ valuation. An educated buyer will evaluate the potential effect of the absence of the owner or other key personnel. This typically will include an analysis of how future sales and relationships may or may not transfer. If a buyer is uncertain about a business’ quality, transferability and synergies due to heavy owner involvement, it will take the buyer longer to properly evaluate the company and slow down the process. If the buyer is concerned, he or she may offer a lower price and terms that will cause the seller to assume significant risk. Something else to keep in mind is that a buyer may ask the seller to remain with their business for a length of time during the transition. However, most owners of small businesses do not intend to stay with the business after the sale. Therefore, the less dependent the business is on the owner, the better the overall outcome.
Working with a business broker can help avoid these common mistakes by helping to navigate the challenging process and make the process of selling a business less stressful. Corporate Investment Business Brokers have the experience and expertise to help you. Please contact us for a free consultation. Call (239) 936-1718. Online at CIBB.com.