7 Common Mistakes Owners Make When Selling Their Business
Selling a company is never an easy task, but don’t make it more difficult than it has to be. Review the following common sense rules to avoid making frustrating mistakes that derail the selling of many small businesses.
1) Poor Preparation
Prepare your business for sale to prevent unpleasant surprises. Business brokers recommend owners spend at least two years getting their finances and overall business practices in order. Improve your company’s accounting procedures, staffing issues and the physical state of your office or facilities. This will impact your business valuation, the type of buyers you attract, and what they are willing to pay.
2) Trying to Go It Alone
Selling your business without help from a broker may result in a poor sale price, delayed sale or no sale. Scattering your energy by handling the sale alone and trying to run your business at the same time can burn you out and result in poor decisions.A business broker’s fee may eat into the amount you receive after closing, but it’s a small price to pay for ensuring a fast and lucrative sale.
3) Not Pre-qualifying Buyers
Pre-qualifying prospects prevents sensitive financial information from being released to the wrong people. After speaking with the prospect and learning about their background and motivation for buying, determine if the person is a good candidate. If so, present the prospect with a confidentiality agreement or non-disclosure agreement (NDA) to protect your interests. After they’ve signed it, give them a selling memorandum detailing your business history, strengths, financial performance (past and present) and marketing strategy.
Not pre-qualifying buyers this way opens you up to noncommittal or shady prospects who have ulterior motives or will waste your time. A business broker is experienced in pre-qualifying buyers and understands the importance of confidentiality when selling your business.
4) Pricing Problems
Concentrate on arriving at a realistic valuation. It also helps to sell your business when the economy is thriving,
Never pick a number out of thin air, or price a business based on what you need.. It’s hard for business owners to adequately price their companies – they are often too close to their “babies”. The market will dictate what your business is worth and a business broker can help you determine the value by preparing a business valuation using comparable sales in your industry and provide objectivity in this process.
5) Confidentiality Breaches
Keeping the sale of your business a secret is vital to maintain profits and productivity. Avoid confidentiality breaches by meeting with buyers at a neutral location and showing them your office or facilities discretely during low-traffic times. Brokers know how to market your business to targeted prospects, and keep the local business community from discovering your plans.
6) Ignoring Lease and Transition Issues
Some buyers prefer previous owners remain with the company during the transition phase to give advice about procedures and daily operations. Discuss transition details with the buyer in advance to avoid misunderstandings. You’ll also need to study your lease to avoid issues with transferring it to the new owner.
7) Misrepresenting the Business or Profits
Misrepresentation of business profits or brand is usually due to lack of preparation (See #1), not blatant dishonesty.
An eager prospect may cause you to become overzealous, and you may exaggerate sales figures or other financials. These numbers can be easily checked during due diligence and interfere with closing the sale, so don’t give in to fudging numbers, no matter how small the discrepancy. It can come back to haunt you.
A business broker can help you avoid these mistakes and help you benefit from their expertise.