Common Mistakes to Avoid When Selling a Business
By Tim Dalton
Last month we looked at six of the most common pitfalls sellers may make when marketing their business for sale. This month we look at five more.
Unrealistic expectations – A seller needs to remember the marketplace sets the price that will be paid for their business. Many sellers inquire from a variety of sources about what would be a good selling price for their business. Some of those sources may be reliable, but seller’s have a tendency to filter what they hear and gravitate towards an unrealistic sales price. This ultimately leads to not finding a buyer for the business.
Timing is the other issue. To find the right buyer and close on the sale may take up to a year is some cases. So timing and pricing go hand-in-hand in keeping expectations reasonable.
Pressuring a buyer – All buyers have concerns about what are they missing when evaluating a business. The seller on the other hand has complete confidence in the business operations and can’t understand why a buyer is so diligent in the evaluation. If you want to turn a buyer off from putting together a deal, pressuring the buyer to move too quickly will do that.
The prudent thing to do is to establish a time period that is contractually agreed upon by the seller and buyer for the due diligence period. That way the expectation of time is decide upfront and all parties are on the same page.
Overselling the opportunity – As mentioned, buyers are highly suspicious when evaluating a business opportunity. After all, if it is such a great business, why is it for sale? Sellers need to be positive when presenting their business to a buyer, but need to be careful not to oversell.
No buyer ever wants to be sold on a purchase. They want to evaluate the positives and negatives and make their own decision. If they feel they are being sold, they will back away from a purchase.
Leaving the business before the deal is closed – For a seller, the deal is not finalized until he or she has a check in hand. Just because the due diligence is completed and a closing date has been established, someone still needs to look after the business as the owner.
To allow the business to run itself or even allow the buyer to take over operations before the deal closes can lead to problems within the business that can kill the deal. Sellers need to remember it is still their business until they have received funds at closing.
Look at the big picture – In the sale of a business there are additional negotiations other than the price. Areas such as non-competes, training and transition periods, accounts receivable and payable, work in progress, obsolete inventory and other areas have to be agreed upon by the seller and buyer. Both parties can get a win-at-all costs attitude and forget to look at the big picture.
For sellers, determine what is really most important to you and get that accomplished. Be willing to negotiate on lesser issues that are not as important to you. A sale will not go through if either party feels the deal is too one-sided.
Selling a business has its nuances. If a business owner has never sold a business before and they want the best opportunity for success, study up on what it takes to sell. Incorporate professionals such as a business broker, accountant and attorney to assist you. A little professional help can go a long way to getting to the closing table with a deal that works for you.