Many business owners try to sell their companies on their own, but with little success. This is understandable, since a high degree of experience is required to navigate the process of selling a business without making a costly mistake. On average, most business owners will only sell one business in their lifetime, so they do not have the experience to avoid some of the pitfalls. Seemingly small errors can have major financial consequences. Here are some of the most frequent mistakes you need to prepare for.
1. Not Knowing What Your Business is Worth
One of the biggest mistakes a business owner can make is not selling for the right price. The market will ultimately decide what a company will sell for, but listing it for the right price can make a huge difference. List it for too much and you risk missing out on the right buyer. If you list the business for too little, you leave money on the table. Some sellers get anxious and lower their price too quickly. Consulting with someone who is qualified to value your business, according to its fair market value, is the best strategy. This person, such as a business broker, has a deep understanding of all of the tangible and intangible factors that go into determining the value of a particular business. They take these attributes into consideration, as well as the current market state and comparable companies within the same industry or region to form an accurate price that they believe will help your company sell relatively quickly, while also maximizing your potential profit.
2. Not Being Ready to Sell
When working with a buyer to sell a business, momentum is very important. You must be prepared to answer buyer questions and supply necessary documentation when it is requested of you, with very little delay. This includes making sure all of your bookkeeping and financial documents are accurate, current and ready to share. It’s always good practice to be keeping up with your books regularly, but if you fall behind for some reason, you must catch up and get everything in order. Also make sure any legal affairs are wrapped up. Showing preparedness makes your company look good, so being unprepared would demonstrate the opposite.
3. Not Seeing the Business from the Buyer’s Perspective
While you know your business inside and out, you might only understand it from the seller’s side. Your bias could make you see business’s strengths and weaknesses in a more favorable light. You must try to look at your business objectively, so you can address deficiencies that might be important to the buyer. Understanding what buyers are looking for in a potential investment will help you to be more prepared to sell and answer tough questions about your company.
4. Trying to Sell to Someone Who is Not Interested
There are typically a lot more potential buyers out there than there are businesses for sale. Unfortunately, many of these buyers are not serious or financially qualified. Without being able to filter through them, you could end up spending a lot of time on someone who is really just kicking the tires. Similarly, competitors might fake interest in purchasing your business, just to get access to sensitive information about it. This is why the best way to sell a business is to have someone who can act as a buffer between you and the buyer.
A business broker is someone who can weed through buyers and make sure you are only dealing with buyers who are financially qualified, and who have signed a Non-Disclosure Agreement (NDA). They can keep the identity of the business confidential, until they are sure that the buyer is serious. Only then will they begin to share sensitive information about the company, such as financial reports. Meanwhile, you don’t have to worry about wasting valuable time with “tire kickers”.
5. Not Getting to Know the Buyer
The better you know your buyer, the smoother your transaction will be. Why do they want to buy your business? Getting to understand their intentions and background can help you make decisions about whether they are the right fit for the future of the company. Knowing a little bit about them can also help you in negotiations. If you have a firm grasp on what the buyer is looking for in a business and what is important, it could give you added leverage. Additionally, you especially want to get to know the buyer if you decide to offer seller financing. In this case you will have an ongoing financial relationship with them and need to get a handle on whether they will be reliable and easy to work with.
6. Not Walking Away From a Deal
Many sellers don’t want to let any deal get away. They give the same time and effort to every offer as though it were the last one they were going to receive. You have to be able to step back and look at the big picture. Sometimes negotiations take a wrong turn or stall out, at which point it might be time to walk away. Don’t get stuck with a bad deal because you are worried that another one won’t come along. It can be tough to walk away knowing you’ve spent a lot of time and effort on a particular deal. However, sometimes the buyer needs to know you are willing to do so. Your willingness to kill a deal might force them to come back with a better offer or more favorable terms.
7. Not Understanding the Structure of a Deal
Sellers sometimes are too caught up in the final sale price. While it is very important, a good deal can come in many forms. Look past the initial dollar amount to see what else the buyer is offering. You might accept a deal just because the price is right, but ignore critical other terms. At the end of the day, you can get a great price and it could still be a bad deal. Remember that in business sales and acquisitions, not all dollars are created equal, and sometimes you have to let the terms decide the price.
8. Waiting Too Long to Sell
Too many business owners wait to sell until the time when they absolutely must. They might be burned out, the business might be dwindling, or they have health issues forcing them to sell. It is always good practice to have an exit strategy in place. Ideally, this is something you would implement from the day you start business. This way you have a set, predetermined point at which you will start the process of selling the business, as well as a contingency plan. Remember that the ideal time to sell your company is when business is good, not when you are desperate.
9. Changing Your Mind
Sometimes a deal might be going smoothly, but the business owner decides to blow it up because they start to have seller’s remorse. They begin to imagine their life after selling the business and start wondering what they will do with their time. This can happen because they have failed to plan for the next stage in their life, or because they’ve decided that the offer they accepted isn’t enough. Usually these feelings of reluctance are triggered by something a friend or acquaintance says. This is another good reason to have an exit strategy and take the time to carefully evaluate every offer. Your exit plan will get you thinking about life after selling the business, ahead of time. Properly analyzing every offer will help ensure you only accept something you are willing to live with.
10. Not Knowing Your Limitations
Getting the help you need to run your business will cost you money. Business brokers, accountants and lawyers have specialized expertise, and they don’t usually work for free. However, their services usually pay for themselves, and then some. Many business owners think that because they know their company better than anyone else, they are most qualified to sell the business. They may know more about it, but they lack the expertise necessary to value a business, prepare it for sale, advertise the business for sale, confidentially market it, negotiate deal terms and successfully close the deal. Business brokers are the best equipped to handle every step of the sale process. They will allow you to focus your time on operating the business, rather than divide it between running it and selling it. You will pay them a commission, but in all likelihood, your profit from the sale will still be more than the DIY approach.
If you own a business that you are considering selling in the Fort Myers, Naples or Sarasota areas, contact Corporate Investment Business Brokers (CIBB). With over 100 years of combined experience, we have been helping business owners sell profitably since 1986. Our process begins with a free, business evaluation and consultation, so you can decide if selling is the right move for you.
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