At some point in time a lot of business owners think about selling their business. It may be that you’re thinking about retirement or even pursuing other business ventures. Many owners will underestimate the time and effort it requires to obtain a satisfactory outcome and yet overestimate the value and salability of the business. Below are 6 common mistakes to avoid when selling your business.
- Not hiring a professional business broker to handle the sale. Owners are often too personally invested (and/or eager to sell) to effectively negotiate sales of their businesses. A broker familiar with your type of business will know what issues are important to buyers and what characteristics to emphasize or de-emphasize, without becoming emotionally involved.
- Failing to base your sale price on independent appraisals. Even if you think you know the value of your business, you should obtain 2 or more outside appraisals from professionals familiar with your industry. If the appraisals conflict with your opinion, they'll provide a much-needed reality check. If they confirm your opinion, they'll become a useful sales tool.
- Overestimated Value. Your selling price should be based on the fair market value of your business in its current form. A buyer won’t care about all the sweat and elbow grease it took to build your business or your vision of its future.
- Failure to account for the make-up of your business. The value of your business is made up of a variety of variables. If your business includes significant equipment, real estate, intellectual property, or other such assets, their values should be separately established before being factored into the overall price. If you're selling a service or professional firm, much of its value may depend on the experience and skills of your managers and employees. In this case, the price may vary according to the expected retention of key individuals.
- Neglecting to work with the buyer to ensure a smooth transition. Nobody likes being thrust into unfamiliar circumstances without preparation. Notifying your managers, employees, and customers in advance and doing all you can to allay their concerns will serve your own best interests, as well as being the honorable thing to do. Discontent on the part of any of the affected parties could result in conflicts, reduced revenue for the buyer, withheld sale payments, and litigation.
- Being unwilling to help finance the sale. If you're unwilling to take back a note, your sale price is limited to the buyer's cash and ability to obtain outside financing. At best this could limit the number of potential buyers, and at worst it could limit your sale proceeds. On the other hand, if you finance too much of the sale price, you'll increase the risk of default.
Selling your business is too important to attempt without professional help. For more tips or a detailed analysis of your business, contact out office at (866) 497-9761 to schedule an appointment with one of our Advisors.