Common Mistakes Small Business Owners Make When Selling
For most business owners, there comes a point when it is time to get out. Either you want to go in a different direction, retire and pass your legacy down to the next generation, or just get out of the business entirely. But selling a small business is not a process that should be taken on haphazardly. It is much like selling a home, except in most cases, your business will be more valuable than your home and there will be far more variables involved to ensure a smooth transaction that all parties are happy with.
Unfortunately, many business owners have little to no experience buying or selling a business. For this reason, they often run into pitfalls along the way that make the sale less than optimal. Here are some of the common mistakes that should be avoided when selling a business:
Failure to properly plan for the sale: Though it varies by industry, completing the sale of a business takes on average about two to four years. This means that if you are thinking of leaving your business behind, the time to start planning is now. All too often, business owners wait too long before starting the selling process, forcing them to settle for less than favorable terms once they do find an interested buyer. One of the top rules in sales is to negotiate from a position of strength rather than weakness. By starting the process early, you will not only ensure that you have all your ducks in a row, but you will also have time to find the right buyer for the right price.
Failure to accurately maintain books and records: Many potential deals fall apart because the business’ financial picture has been misrepresented. Whether it is inadvertent or intentional, inaccurate financial records are a major turn off to prospective buyers because they assume that if your finances are disorganized, there are likely other problems with the business as well.
Setting the wrong asking price: This is related to number one; a seller that fails to plan will often set a price that is too high (or too low). Research of other similar businesses selling in your area is critical to arriving at a realistic price. And of course, if you put the business up for sale earlier (like one to two years in advance), you can hold out for a higher asking price than if you need to get out as soon as possible.
Using the wrong representative to sell the business: When selling a business, it is always advisable to work with a local business broker. However, not all business intermediaries are created equal. Interview several brokers and work with the one you are most comfortable with. Also, make sure the broker you choose has experience in your particular industry. For example, if you are an accountant looking to retire and sell your practice, look for a business broker that specializes in CPA practice sales. The important thing is to do your due diligence and find the person you judge to be best qualified to sell your business.