Don’t Slip on These Mistakes When Selling Your Business
By Tim Dalton
I’ve been fortunate to earn my living working as a business broker for the past 19 years. Through that time I have seen several missteps from business sellers that have made the process of selling their business more difficult.
The great thing about experience is you can learn from it, which allows us to be better coaches and advisors for our clients. If you want to have a successful business sale, below is a list of common pitfalls to avoid.
Not having a plan for after you sell the business. This may sound fairly basic, but many business sellers know they want to sell, but take a wait-and-see, if-I-get-a-buyer attitude about their after-sale plans. The problem with that is once a buyer starts negotiating in earnest to purchase the business, some sellers start to back up about truly wanting to sell due to an uncertain future. A buyer will pick up on a seller’s hesitancy and will develop concerns of his or her own.
Talking to others about the business being for sale. In most cases the customers and employees have worries when they hear a business is for sale. Competitors can also use this information to their advantage in the marketplace. Confidentiality about the sale is of the utmost importance.
Waiting until after the business is for sale to get your financials in order. Financial statements are at the heart of all business sales. In a small business, keeping up with the finances often gets placed on the back burner when more pressing daily operations take precedence. Take the time to get your financials in order. Any inaccuracies or delays in getting financial information to a buyer will turn the buyer cold on the deal.
Having a business where the seller is not replaceable. Sellers wear many hats in the operation of their business and if no other employee within the company can perform some of the tasks of the seller, it is less appealing to a buyer. Buyers understand they will need some training in order to step in behind a seller, but if the seller is not replaceable, buyers get leery.
Not being forthcoming on the real reason the business is for sale. Business owners sell for many reasons such as retirement or health issues. Even something like simple burn out is also a legitimate reason. However, to try and hide any business deficiencies as the reason for the sale will always backfire. Many times what is perceived as a deficiency can be overcome by new ownership with more resources or management expertise, but buyers need to be made aware upfront.
Changing how you operate the business. When you list your business for sale is not the time to cut back on routine maintenance, advertising, employee incentives and other expense categories to try to save a few bucks. Buyers want to see what led your business to success and to cut back on the factors that contributed will be noticeable. It can also be viewed as artificially trying to improve the short-term bottom line.
This is just a short list of the pitfall items we have compiled. The thing for all sellers to consider is when a business is for sale it needs to be at its best. Have a plan, be prepared and understand a buyer is always thinking, What am I missing? Don’t give them any reason for doubt. After all you do have a great business, make sure it shows that way.