7 Deadly Mistakes To Avoid When Selling A Business
- Not knowing your business's true market value
Different buyers will have different perceptions of value and some will pay far more than others. Unless you know your business's range of value up-front, you are handicapped in the selling process. Knowing your business's key value drivers and the range of market value is always the best starting point when evaluating whether to sell your business and at what price.
- Asking an unrealistic price for your business
This arguably is hard for many sellers to understand, but the fact remains we are in an "information age" where buyers can source all types of information on business sales and business values within minutes. With key information at the buyer's hand, your business offering is at a distinct disadvantage by asking a price that is "out of the ballpark."
- Lack of deal structure expertise
When you have limited knowledge about the available alternatives for structuring the sale of your business, you are at a costly disadvantage. Items such as leverage buy-outs, leases, royalties, earn-outs, consulting agreements, non-compete contracts can add immeasurable value and security to both buyer and seller alike.
- Failure to maintain confidentiality
Confidentiality is vital to the selling of a business. If employees know that you are selling and ownership changes are coming, they may seek other opportunities. Competitors may use this confidential information as a selling tool against you. Vendors may not continue to extend favorable terms. Profitability and market value of your business may be irreparably harmed.
- Failure to continue running your business
It is important to maintain your business at peak operating capacity. The performance and productivity of your business is what you are really selling. Time taken from managing your business to sell it will have a toll on the business and as a direct result lower its market value.
- Failure to seek professional assistance and consultation
There are legal, financial, marketing and a whole host of vital considerations that must be addressed in the selling process. If you are struggling with the decision to hire a professional intermediary to help sell your business, consider the likelihood of one or more of these unintended outcomes happening to you if you decide to go it alone:
- Paying more in taxes than you might otherwise have had to;
- Selling at below market value;
- Financing of unqualified buyers with the increased risk of not getting paid;
- Spending time and money during the sales process while still not getting your businesses sold;
- Ending up with poor legal documentation resulting in legal problems.
- Waiting Too Long
Many business owners wait too long to sell their business. We are seeing this in this during this economic downturn and ones in the past. Housing, auto, retail, and tourism-related companies for the most part are performing below expected levels. Many of these industries and companies may face several years of market softness before experiencing a strong rebound. That leaves a large number of business owners at retirement age that may have a significantly lower business value. Timing of when to sell your business underscores the importance of having an exit plan ready and understanding the risks of waiting. On average it takes a year to sell a business that is profitable and correctly priced.