Sellers, especially those who go about selling their business on their own, often make mistakes when preparing their company for sale. Some of common mistakes I have seen sellers make can be found below.
No Preparation
Too many businesses come to the market without a proper understanding what is involved in the sales process and what they want to get out of the business sale. It is critical that you understand these aspects and have a solid plan for what you would like to achieve. Inadequate preparation on a seller’s part can frustrate buyers and waste everyone’s time, and is likely to result in no sale, or in sale with highly discounted price.
Not Maintaining Confidentiality
In most cases, if you do not maintain confidentiality when selling, you could cause damage to your business that will affect the closing price you receive from a buyer. Vendors, customers, employees and competition are affected in different ways when they find out that an owner is selling his/her business. If you are in the process of talking with potential buyers and word leaks out that your business is up for sale, you have then put your business in jeopardy. You want to be the one that lets people know you are selling your business. Having control over when this information is given to the public allows you to have the affairs of your business in order and the pieces put in place to manage the aftermath of this news.
Related:
- Maintaining Confidentiality When Selling a Business
- Why Confidentiality is Important When Selling Your Business
Incorrect Valuation
The most important process when selling your business is determining just how much your business is worth. If you undervalue your business, you end up leaving money on the table. If you overvalue your business, you will not receive any interested buyers. Determining the value of your business can be difficult, especially when you have a bias opinion on how much it’s worth. After putting years of sweat, blood and tears into the business, you are more apt to over estimate its true value.
Not Using Professionals Appropriately
Accountants
As a business owner, you’re likely to have an accountant on staff or someone who you use on a retainer basis. They may be able to handle the day to day bookkeeping and tax filings of your business, but more than likely they will not be versed in the tax code related to business transactions. Another mistake sellers often make is believing that they can have an accountant value their business for them. Your accountant will try to find every last dollar that could potentially add value to your business. While you may think this is good, you are hurting yourself because your accountant ends up overvaluing the business (as he or she is not looking at the business from an outside perspective).
Attorneys
While using your regular business attorney may seem like a good idea, since they already know the ins and outs of your business, they will most likely not have the experience to handle a merger and/or acquisition. M&A’s can become very complex, even when there is not a large some of money involved, depending on how the deals are structured. You will need an expert that understands the ins and outs and all the paperwork involved when structuring a deal for the buyer and seller to sign.
Going Through This Alone
The worst thing you can do for yourself is to travel the road alone. Selling a business is a taxing job that involves much more work than a business owner initially realizes. If you plan on selling your business to a family member, co-worker, or competitor, you may be able to get by using a professional attorney that has experience in M&A’s. In this scenario, it would still be best to hire an outside professional to value your business. If you are like most sellers, you will be listing your business on the open market. In this case, you will be best off hiring a professional advisor to spearhead the process.
