A dedicated business owner can spend years growing and grooming a business, but there may eventually come a time when the owner is ready to sell. Retirement, health issues, and return on investment – these and others are legitimate reasons to sell a business.
Whenever the time is right for you, it will quickly become clear that selling an entire business, is not the same as selling everyday products and services – even for the best salesperson in the world . The following guide provides an overview of the mistakes that can be made when selling a business and will help you navigate this often difficult and complex process.
Lack of Preparation
Selling a business requires more than simply offering it for sale and waiting for a buyer to appear. To successfully sell a business, you must be fully prepared. It’s not uncommon for preparations to begin a year or even two years prior to the business being offered for sale
Some essential preparation tasks include:
- Assembling financial statements and documentation
- Addressing legal or regulatory matters
- Confirming company value and profitability
- Dealing with leasing or rental issues
- Helping potential buyers with market analysis and other due diligence
- Planning for staffing issues and management transitions
Misunderstanding the Company’s Value
Business owners naturally want to get the highest amount possible when they sell. However, there are several factors that must be addressed when looking at the actual value of the business.
In many cases, owners will estimate the value of their business incorrectly, believing the company is worth more than it actually is in the current market. This can be understandable, given the amount of time and effort the owner has put into the company. However, the realities of the market sometimes disappoint or even shock potential sellers.
Another variable in the selling process is that companies will sometimes have different values based on market factors and other situations. A seasonal business, for example, may vary in price based on the season. If your company has reported lower profits to reduce tax burdens, it may look less profitable, and less valuable, than it actually is.
Owners must also determine an accurate and realistic return on their company. If the owner is planning to sell and retire on the proceeds, he needs to be certain that the sale will provide the amount of money he or she is expecting after taxes, fees, and other expenses.
Trying to Sell to the Wrong People
In practice, only a small percentage of companies actually sell when put on the market. Trying to sell the business to the wrong people will make this situation even worse.
A business owner may have fielded semi-serious offers of purchase for years. A vendor, friend, family member, or competitor may have good intentions when they ask to be notified when the company is for sale. However, if they aren’t qualified purchasers, their interest in your company, even if sincere, will not benefit you.
Some owners restrict their potential pool of buyers to only local candidates, or to other companies in the same industry. Don’t limit your opportunities in this way. A company with a far-away headquarters might be interested in entering the market in your geographic area, and your company might give them the perfect opportunity to do that.
Lack of Involvement with Professional Advisors
Brokers, financial advisors, and other business professionals are extremely important to the business selling process. Some owners might believe that they can navigate the process without the help of a professional, and for some, this may be true. However, the complexity of selling a company usually makes it necessary to involve an expert who knows all the details involved in a successful sale.
Experts do require a substantial fee, but the convenience they provide and the expertise they offer can make that fee a bargain. For example, while you’re still running your company, an advisor can show the business to potential buyers, handle negotiations, and help prepare for the sale.
At the other extreme, a business owner who hires a advisor might believe that since the process is being handled by a professional, he/she no longer needs to involve themselves in the sale. Even when a professional is involved, your engagement as the business owner will still be vital to the sales process.
Seeming too Eager
In negotiations, it’s said that the first one to blink will lose. A similar concept holds true for business owners who are too eager to sell their company. If the owner is the first to mention a price, doing so removes important negotiation space that could have otherwise netted the owner a better deal.
A business owner who seems too eager to sell the company may trigger suspicions in a potential buyer or, in the worse possible cases, cause a buyer to back out of the deal because of excess caution.