There’s no room for error in the business-for-sale marketplace, so here is a continuation of last week’s selling challenges that can impact the sale of a business. With a little foresight and preparation into common seller frustrations, you can avoid a few of the common pitfalls and exit your business with a smooth transition.
As a seller, you want to portray your business in the best possible light. However, there is a big difference between representing your business in the best light and misrepresenting your business to prospective buyers. At some point during the selling process you will be tempted to exaggerate numbers, distort projections or even cover up problems. However, misrepresentations send up red flags when prospects review the actual financials and can become the basis for legal action after the sale. Talk to your attorney or broker about everything, including business forecasts, before passing the information on to the buyer.
7. Pricing Problems
Inexperienced sellers have a tendency to set a price (usually on the high side) before they have determined value. The reason this is such a big mistake is that price is the single most important factor in determining how long a business stays on the market. Sellers who have taken the time to conduct a thoughtful valuation process before assigning an asking price are more in touch with marketplace prices and better positioned to reap the benefit of a faster, smoother sale.
8. Only Entertaining All-Cash Offers
All-cash sales are not only unrealistic – they can also be detrimental to sellers from a tax perspective. Instead of handing over a big chunk of cash at closing, today’s buyers are more likely to need concessions in the form of seller financing, deferred payments or assistance in obtaining third-party financing. The benefit is that spreading sales receipts over a multi-year period can enable you to avoid higher tax brackets.
9. Breaching Confidentiality
Confidentiality is a sensitive, but important issue for most business sellers. If the word gets out that your business is on the market, it could adversely affect sales and even your relationship with your staff. A good broker will know how to simultaneously market your business and maintain strict confidentiality. If you’re pursuing a FSBO approach, it’s a bit trickier but it can be done by creatively targeting your marketing efforts to a small handful of likely prospects.
10. Failure to Address Transition Issues
Many of the business sellers I meet are so focused on selling their business that they completely neglect the transition process that will occur after closing. Some buyers will insist on the seller remaining on for a few months to assist with the transition and/or training, while others prefer a clean break. Either way is fine – as long as the buyer and seller have discussed the transition and reached a mutually acceptable arrangement during negotiations.
By Mike Handelsman, SVP, Group General Manager, Business For Sale at LoopNet, Inc.