The number of businesses for sale is on the rise, with retired Baby Boomers leading the way. According to a recent survey by Pepperdine University, 2 out of 3 private business owners said they expect to transfer their ownership interest within the next 10 years. Yet, many of these owners will be in for a big surprise when their deals don’t happen – primarily because of these 3 major mistakes:
1. Overpricing the business. According to a separate Pepperdine survey of business brokers, more than 50 percent of their deals for Main Street businesses – those with revenue of $2 million or less – terminated without a closing. Scott Bushkie, principal of Cornerstone Business Services Inc. and a Certified Business Intermediary, sees these owners as proud parents, who only see the business in the most favorable light when it comes to pricing. Bushkie recommends business owners plan ahead by periodically seeking valuations or even less formal estimates of value along with a market analysis.
2. Poor financials. Another big mistake sellers make is poor financial records. Many small business owners don’t fully understand their financial statements and only examine them around tax time. Business financials should be updated at least 3 times a year, and be readily available at all times. Solid financials allow owners to get a better sense of the long-term value of the business and then plan ahead.
3. Declining business sales. It’s important to have healthy sales growth at the time of sale because it shows potential buyers how products and services are being received by the market. Businesses that have been profitable for years start declining when the owner decides to pull out; they’ve lost interest, become less committed and it shows up in sales figures. In other instances, an owner will hold on to the business too long. After many profitable years, sales start to decline and then the owner decides Focusing on sales growth is critical in the years leading up to selling the business.
For more details on preparing your business for sale, download BizBuySell’s free Guide to Selling Your Small Business.
“If you’re one of the millions of Baby Boomers and others thinking of selling your business in the next several years, consider this: The top mistake sellers make is having unrealistic expectations, according to a recent survey of business brokers and advisors.”