When it comes to selling a business, a lot of owners want to take control of the process and do it on their own. This DIY approach comes from the entrepreneurial spirit that drives small business owners. Many do not trust the sale of their business in someone else’s hands, and others are just looking to save money and avoid paying a commission. However, selling a business is a huge undertaking, and mistakes that seem small can be very costly. Here are some of the most common errors, how you can avoid making them and maximize your profit from the sale.
Failing to Plan Ahead
While the idea of selling quickly and using the profits to start a new career or retirement might sound great, you need to understand that the process takes time. You need to prepare your business for sale. One way you can accomplish this is by getting your financial statements in order. This includes tax returns, profit and loss statements, balance sheets, bookkeeping software, invoices and bank statements. All prospective buyers will need to see your financials. If your records are disorganized or incomplete, it will give the impression of a haphazardly run business. Besides organizing your books, there may be capital improvements you can make, or debt you can reduce before listing your business for sale. Even though it may seem tedious, and you will probably be eager to start the sales process, you will start in a position of strength if you properly prepare the business before listing it.
Setting the Wrong Price
Many business owners think that because they know their business so well, they have a clear idea of what it is worth. Nothing can be further from the truth. Countless sellers overvalue their business, allowing their emotions and biases about their business dictate their price. By shooting too high, it may take a very long time to sell their business, and the actual sale price will fall far short of their expectations. Others underestimate the value of their business by failing to account for the value of equipment, real estate or other assets. This could result in leaving tons of money on the table.
Getting a professional business valuation is the only way to know the true value of your business, and how much you should sell it for. A business broker can give you an accurate and objective valuation of your company. They can make sure that all potential value is accounted for when determining how much your business is worth. This will help you to come up with an appropriate asking price.
You know your business better than anyone else does. Use your knowledge to create a selling memorandum that highlights the company’s strengths and growth potential. This should give buyers a broad overview of the business’s products, services and operations. When marketing you need to be careful about giving out too much information about the business too soon, so keep it short and sweet.
Failing to Maintain Confidentiality
The ideal way to sell a small business is with blind marketing, where its basic details are included in the listing, but not its identity. Then, when you determine that a buyer is serious, and not just kicking the tires, you can divulge more information to them, including the identity of the business. If you reveal too much about the business too early in the process, or if its identity becomes public, the seller can open themselves up to several problems. A public sale opens your business up to many phone calls and drop-ins by people who are not seriously interested in buying. This can quickly overwhelm you and waste a lot of your time.
Making the knowledge of your business sale public can also create issues with your employees and customers. If even one employee find out about the sale of your business, it can crate rumors and unrest. Some staff members may become uneasy about their employment status, and start to look elsewhere for work, request pay increases, or ask for reassurance that they will still have a job after the sale. It is important that you address any rumors immediately and directly, before they get out of control.
Similar to employees, customers might become wary about the changes that come with new ownership. Some of them may get used to the familiarity of the business and dealing with the same people on a regular basis. This attachment could make some customers worried about not getting the same level of service with a new owner, and you might lose some. If too many start to leave, it could also make a buyer worried and want to back out of a pending deal. When customers find out about your business being for sale, competitors will not be far behind. As soon as your competition finds out, they might try to take advantage of the situation and purge your business.
The best way to prevent leaks in your confidentially is to hire a business broker to sell your business. Brokers are experts at confidential marketing. They know how to determine if a buyer is truly serious, and exactly when to reveal details about your business to them.
Trying to Sell on Your Own
If you decide to sell a business on your own, without professional help and also continue to try and run it, you will quickly discover that you have spread yourself too thin. As previously mentioned, a business broker can help you to determine how much your business is worth and help you to sell it confidentially, both of which are critical services that can save you a lot of money. However, one of the most important things they can offer is to simply allow you to run your business, while they deal with the sale process. Business brokers act as a buffer between you and the seller. Once you prepare your business for sale, you can allow them to handle marketing, buyer inquiries, qualifying buyers and negotiations, without detracting from your daily efforts of running the business.
Letting Your Guard Down
Selling a business can take several months, and in extreme cases, more than a year to complete. The process takes a long time because buyers have to do their due diligence, obtain financing, agree to deal terms and close on the business. You might get tired of waiting for the deal to go through and be tempted to take shortcuts. It is critical that you continue to run your business as you normally would, and be thorough with everything that pertains to the deal. Imagine waiting months for a sale to complete, and then it falls through because you let your foot off the gas. Stay focused on running the business, as if you were keeping it. Profits will remain strong, and your buyer will be much less likely to back out.
Selling to the Wrong Person
You have worked hard to build your business and you more than likely want someone to continue your legacy. Even if you are moving on to a new venture, or retirement, you want to be able to leave comfortably, and on a high note. You also want the new owner to succeed because if they are doing well, they are less likely to come back to you with lawsuits or claims about certain aspects of the business not being disclosed. If you feel it is necessary to help acclimate the new owner, offer to provide training or stay with the company for a brief period following the sale. This will help you feel like your company has been passed on to a worthy successor.
Selling a business in Southwest Florida is a difficult task, with many nuances. Corporate Investment Business Brokers (CIBB) in Fort Myers can help you navigate the rough waters of preparing your business for sale, confidentially marketing it, finding a qualified buyer, negotiating terms and closing the deal. CIBB has over 30 years of experience helping small businesses owners sell their companies while they continue to operate them. Our no-obligation consultation begins with a free business valuation. Contact us today to find out what your business is worth and discover how profitable your sale can be.
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