Most sellers don’t expect the exit from their company to be easy, but many are surprised by how difficult it can be to sell their business for a good price in a reasonable time frame, especially in the current economic environment. There are literally dozens of challenges to overcome, but here are those that could have the most significant impact on your sales transaction:
Mistake N1: Not planning ahead / Insufficient Preparation
Lack of preparation is by far the most common mistake that small-business owners make. 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 company before listing it for the transaction. Financial documentation, sustainable profitability, staffing problems and other concerns will not only impact salability, but also the price your business will command in the marketplace.
Mistake N2: Not finding the right person to represent your business
Finding the right broker and/or consultant to help you sell your business is crucial to your success. You’re an expert at running your company-not selling it. Would it be nice to save the roughly 10 percent brokerage fee? Sure, but in most cases brokers are capable of adding at least 10-12 percent to the sales price. Even though there are certain circumstances in which a for-sale -by-owner approach makes sense, most owners are better off hiring a professional to handle important tasks like preparation, showing the business to potential buyers, marketing and negotiation.
Mistake N3: Incorrect / unrealistic pricing
Inexperienced sellers have a tendency to set a price before they’ve calculated 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. Consider peculiarities of your industry, similar companies, the economy and your marketplace. Overestimating required transaction amount of your sale can lead to buyers not taking you seriously. If you don’t know how to value your business seek advice from a broker. Share owners who have taken the time to conduct a thoughtful valuation before assigning an asking price are more in touch with marketplace prices and better positioned to defend that price and to get the benefit of a faster sale. Another mistake is to price the business too low. So avoid problems and get an objective third-party valuation.
Mistake N4: Failure to Address Transition Issues
Many owners 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 this transition or training, while others prefer a clean break. Either way is fine – as long as the parties have discussed and reached a mutually acceptable arrangement during negotiations.
Mistake N5: Lack of confidentiality during the sales process
Once word gets out that the business is being sold, employees may leave, vendors may hold back on deals, and customers may head to your competitors. The value of your company can drop quickly if you do not maintain confidentiality.
Mistake N6: Right timing
The best time to sell your business is when your performance is at or near its peak and market valuation is highest. Many people wait to decline and enter negotiations at the bottom when they have financial or other kind problems. That’s the exact opposite of what has to be done.