When someone has owned and operated a business for a significant length of time, they will inevitably consider selling at some point. Maybe you are approaching retirement age, or maybe you are just looking for a change. Whatever your reason, it is very important to prepare ahead of time and enter the sales process with the right mindset.
Selling a business is a very complicated transaction, much more so than something like residential real estate. Because of this, there are a lot of potential pitfalls that an owner can fall into.
Here are seven mistakes that owners commonly make during the business sales process:
Table of Contents
- Waiting Too Long to Sell the Business
- Overvaluing the Business/Unrealistic Expectations
- Failing to Pre-Qualify Prospects
- Giving Up Too Soon
- Allowing Confidentiality Breaches
- Conveying Urgency to a Buyer
- Trying to Sell the Business on Your Own
Waiting Too Long to Sell the Business
One critical mistake that owners sometimes make is hanging on to the business longer than they should. For example, they reach a point when they become tired of being involved, but their company is still on solid financial footing. But then they go on for a couple more years and things start to fall apart. If you wait too long to the point when things are on a downward trajectory, then the value of your business will drop accordingly.
Overvaluing the Business/Unrealistic Expectations
Owners who have spent years building their business understandably believe that it is worth a lot. But having this type of emotional investment can cloud your judgment and cause you to overvalue the business. Along the same lines, owners also tend to provide unrealistic projections for future sales.
It is important to keep in mind that buyers do not see your business the same way that you do. They are looking for an investment that they can make money with, and they want to pay a fair price for that investment.
Failing to Pre-Qualify Prospects
Because they are not usually familiar with the business sales process, owners often have difficulty distinguishing between serious buyers and “tire kickers”. Prospects should go through a qualifying process that involves learning about their background and motivation for buying, signing confidentiality/nondisclosure agreements (NDAs), and being careful and deliberate about how much information is revealed as a prospect enters various phases of the buying process.
Pre-qualifying prospects is very important, because it helps you avoid wasting time with unqualified prospects, and it helps prevent sensitive information about the company from falling into the wrong hands.
Giving Up Too Soon
Business owners need to understand that selling a business is typically more of a marathon than a sprint. Although it can happen, an ideal buyer will rarely come along and purchase the business within the first couple of weeks of being on the market.
As we touched on earlier, owners need to go in with the right mindset. Be patient. Be ready for some setbacks and moments of frustration during the process. And expect that some potential deals might fall through before the business is finally sold.
Allowing Confidentiality Breaches
When you are selling a business, it is critical that you keep sales proceedings confidential until the time is right to reveal it to your staff and customers. If word leaks out that the business is for sale, it can cause major instability which could jeopardize your ability to sell for the price you want. Owners should avoid this at all costs by telling as few people as possible about the sale, and meeting with prospects either in a neutral location or at the business during a time when it is possible to meet there discreetly.
Conveying Urgency to a Buyer
Owners who are not careful might reveal something during a conversation with the prospect that conveys urgency or even desperation to sell. Owners who do this should not be surprised if they suddenly receive a lowball offer from a prospect who they thought would be a good fit to buy their business. It may be true that you are motivated to sell; but communicating this to buyers gives them more leverage during negotiations.
Trying to Sell the Business on Your Own
As we have seen, trying to sell a business on your own can lead to a lot of critical mistakes. If you go this route, the process could end up dragging out for far longer than it should, and at the end of the day, you may end up with an unsatisfactory sale price. The better approach is to work with a professional who has extensive business selling experience.
CPA business brokers, also known as business intermediaries, work regularly with owners to help them complete a successful business sale. They help prepare owners ahead of time for the process ahead, and they work preemptively to ensure that sellers avoid any major mistakes that could jeopardize their ability to sell for top dollar.
