It can be quite difficult to sell a business in a respectable amount of time at a fair price. It's important in this economic environment that you stay impartial and don't get frustrated into accepting a smaller amount. There are many frustrations and difficulties that come from a lack of information. When sellers aren't sure of their next steps, they can easily make a common mistake.
In today's market, there are so many challenges to selling a business, but some of them can have a much bigger impact on the sale of your business itself as well as your satisfaction with the sale. Here, we explore the most common ones so that you can avoid them and maximize your chances of success.
1. Too Much Confidence
It's natural to be confident about selling your business successfully and getting a good price for it; in fact, there's no problem with that. The mistake happens if your confidence makes you neglect something that you need to do to benefit your sale. There are so many people who try to sell their business but they're too confident that they'll get a fantastic price, which all stems from the belief that it's what their company is worth. This happens time and again. In reality, however, the value of a business comes from specific criteria not just how much the owner thinks it's worth.
In order to avoid this common mistake, you should get your business valued objectively by a third party. You can also go online on websites for businesses for sale and see the prices of comparable businesses. When you have a better overall picture of how much your business is worth, then you can take on the projects necessary to increase your business's value.
2. Relying Too Much on Professionals
On the flip side of the coin, hiring a broker doesn’t mean you can wash your hands of the sale and walk away. A common mistake made by sellers is stepping away from the sale process as soon as they sign the broker agreement. It’s true that your broker will work hard on your behalf to sell the business, but you have a lot of information about your business; more than anyone else does. Speak to your broker about how you can help to market your business without getting in their way or overstepping.
Furthermore, once some qualified buyers have been identified, you can connect with the buyer to build trust about the business management. The way you interact with the prospective buyers has a lot to do with whether your sale will be successful.
3. Not Using Professionals
Even though you know your business back to front, it doesn't mean you're an expert at selling it. Joshua Green, a business blogger at 1day2write and Brit Student, explains that "many sellers are unwilling to hire a broker to help them with the sale of the business, even though they're the expert. Of course, there's a brokerage fee that you would have to pay, but when you factor in the ability of brokers to increase 10 to 12 percent of the sale price, it becomes worth it".
The broker can help you with some essential tasks related to the preparation of the business for the sale, meeting potential buyers and showing them the business, marketing the sale, and negotiating offers. You shouldn't stop at getting help from a broker though; a lot of other professionals can help, like accountants, financial consultants, and lawyers.
4. Lack of Preparation
Of all the mistakes on this list, not being sufficiently prepared is the most frequent one that small business owners will make. There are several parts of your business that you need to take care of before you list it in the marketplace as for sale, just like you would fix certain issues with your house if you were selling it.
The price you can get for your business and how appealing it is to prospective buyers will depend a lot on the financial documentation you have for it, its sustainable profitability, if there are any lease issues or staff problems, and any other loose ends. What you should also consider is that you should start preparing for the sale as much as two years before listing it in the marketplace, so if you're planning on selling in the next two years, you should already be preparing.
5. Not Pre-Qualifying Buyers
As many brokers will tell you, for your business sale to be successful, you must run a pre-qualification of your possible buyers, and do so early. The mistake is made when sellers are worried about pre-qualifying too soon and scaring prospects away. The reality is the opposite though. Pre-qualification involved the potential buyer deeper into the sale.
The main reason to pre-qualify buyers is to make sure that only potential buyers who are serious receive important information about the sale, and to protect all the private and sensitive information of your business. Documents used in the process for pre-qualification (such as confidentiality agreements and information about financial backgrounds) are normal practice for prospective buyers. It’s natural that they will want to see the key details about your business.
6. Misrepresenting Your Business
It’s important for sellers to put their business’s best foot forward. What you can’t do, though, is misrepresenting your business to show something that it’s not. During the selling process, you may at some point wish to exaggerate certain numbers, change your projections, or hide problems you might have.
When you misrepresent your business, prospects will see this as red flags because they will eventually see your real financials and pursue you in the courts after the sale. Speak with your attorney or your broker every step of the way, and be upfront about all numbers before going to any buyers.
Related: Business Sale Presentation Template
7. Price Issues
Sellers who don’t have much experience in the business will usually set a price that’s a bit too high without even determining the real value, as we’ve seen. This is a bigger mistake than you might think, because price is the biggest factor for a business staying on the market. If the seller has put time and effort into valuing their business before listing an asking price are in a much better position with regards to market activity and to defend their price.
Related: Setting a Realistic Asking Price
Another issue with price is when you are only willing to entertain all-cash offers. This is unrealistic today and can actually be a really poor financial decision when tax season comes around. Instead, Jessica Carney, a marketing writer at Write My X says to "offer concessions like seller financing, third-party financing, or deferred payments. By doing this, you can avoid being in higher tax brackets because the amount is spread over years."
Selling A Business: Don't Make These Mistakes | BizBen.com
8. Confidentiality Issues
You must maintain strict confidentiality about your business in tandem with your broker. If it becomes known that your business is on the market, your sales could be affected and your staff as well. If you don’t have a broker, the best way to manage it is by addressing only a few potential buyers. You should also be keeping the transition process in mind which takes place after the sale. By following these tips, you should be able to make your sale more successful, regardless of whether you’re hiring a broker or selling by yourself.
Darryl Martin, a professional writer an editor with Academic Brits. He is very creative and engaging and his job leverages his knowledge about small business owning.