Let’s face it – selling a business can be challenging, even for experienced business owners who have bought and/or sold several businesses.
At BizBuySell.com, the largest online business-for-sale marketplace in the nation, I encounter frustrated business sellers on a daily basis. Although none of them expected the exit from their company to be easy, many are surprised by how difficult it can be to sell their business for a good price in a reasonable timeframe, especially in the current economic environment.
But in my experience, the majority of frustrations and challenges sellers experience could easily be avoided with a little upfront information about the pitfalls of selling a business in today’s market. There are literally dozens of mistakes you can make in a business sale – but here are the ten mistakes that will have the most significant impact on both your business sale and your peace of mind.
1. Insufficient Preparation
Lack of preparation is by far the most common mistake I see among business sellers. Just like you would spruce up your house before hanging a “For Sale” sign in the front yard, it’s important to address several key aspects of your business before listing it in the business-for-sale marketplace. Financial documentation, sustainable profitability, lease issues, staffing problems and other issues will not only impact salability, but also the price your business will command in the marketplace. One more thing to consider is that the time to start preparing for your business sale is right now – most brokers recommend that owners start the preparation process at least two years before the business is listed.
There’s nothing wrong with being confident that you are going to successfully sell your business at a good price – unless your confidence causes you to neglect activities that are necessary to make your sale a reality. I’ve seen far too many sellers go into the selling process with the confidence that they will get top dollar for their business business simply because they believe that is what it’s worth. In the real world, valuation is based on quantifiable criteria, not the owner’s personal estimation of worth. To avoid this mistake, get an objective third-party valuation early in the process and work to address issues that could lead to increases in value.
3. Unwillingness to Leverage Professionals
You’re an expert at running your business – not selling it. Yet it’s always surprising to me how many sellers are averse to hiring a business broker to facilitate the sale of their business . Would it be nice to save the roughly 10% brokerage fee? Sure, but in most cases brokers are capable of adding at least 10-12% to the sales price. Even though there are certain circumstances in which a FSBO (For Sale By Owner) approach makes sense, most owners are better off hiring a broker to handle important tasks like preparation, marketing and negotiation. Likewise, don’t hesitate to leverage the expertise of other professionals (e.g. accountants, lawyers, financial consultants) when you need them.
4.Taking a Hands-Off Approach
So once you’ve hired a business broker, you’re work is done, right? Not a chance. Unfortunately, many buyers make the mistake of disengaging from the selling process once they have signed a brokerage agreement. Although your broker will work hard to market your business , no one has more motivation to sell or inside knowledge about the business than you do. If you haven’t done so already, have a conversation with your broker about how you can proactively market your business without stepping on his toes. In addition, once the broker has found a few qualified buyers, the buyer plays a key role in instilling confidence in the buyer that the business can be purchased and managed successfully. Whether you like it or not, your interaction with the potential buyer will have a large impact on whether your business sells or not.
5. Failure to Pre-Qualify
Early pre-qualification of prospective buyers is essential for a successful business sale. Business sellers typically want to avoid qualifying prospects too soon for fear that they will scare the prospects away. In fact, more often than not pre-qualification draws prospects deeper into the sale. More importantly, early pre-qualification protects sensitive information about your company from falling into the wrong hands and ensures that only serious buyers have access to key details of the sale. Pre-qualification documents like confidentiality agreements and financial background information are standard requirements for prospective buyers interested in seeing critical information about your business.
Stay tuned for next week’s continuation of tips to seamlessly sell your small business.
By Mike Handelsman, SVP, Group General Manager, Business For Sale at LoopNet, Inc.