If you’re selling a business, it’s important to understand the common pitfalls and mistakes sellers make so you can ensure a smooth and successful process. In this post, we outline the top 10 mistakes that sellers make:
1. Not knowing where to price the business
Not knowing the proper pricing for your business is one of the most common mistakes. Pricing the business too high or even too low can raise red flags that turn buyers away. Before making the decision to sell and placing on the market, it can be beneficial for sellers to work with a qualified business broker to price their company appropriately. An experienced business broker has both the technical ability and the market experience to produce the most realistic pricing.
Fair Market Value
Asking Price is what the seller wants
Selling Price is what the seller gets
Fair Market Value is the highest price the buyer is willing to pay and the lowest price the seller is willing to accept.
2. Not preparing the business for sale
Determining the price point is only the first step. Before selling a business, you should be as prepared as possible with current financial, legal and operational information for potential buyers to review. You can expect buyers to want to see this information and having it ready will make the business appear more organized. Demonstrating preparedness places the business in a favorable light, while being unprepared can delay the selling process and turn buyers away.
3. Not being able to see the business from a buyer’s perspective
As the owner of a business, it can often be difficult to step outside and see the business from the buyer’s perspective. It’s natural to view your own business in a favorable light and overlook problems and issues, however your ability to do this could help you sell your business faster. You have to approach selling your business realistically, knowing that a potential buyer will be looking for the negatives as well as the positives and weighing those circumstances. The ability to not only recognize flaws in the business, but actually present them as areas of potential growth will make your business very attractive to a buyer.
4. Not knowing the buyer
By knowing the buyers, their motives, their interests and their backgrounds, the better equipped a seller is to make informed decisions about whether they are the right people to operate the business. Selling a business is bound to have challenges, however the better you know the buyer, the better you can anticipate their needs and concerns and have the necessary information available. The more you can understand the buyers motives, the better position you’re in.
5. Trying to sell to uninterested buyers
There are plenty of “potential buyers”, but the questions is, are they serious buyers? A potential buyer may display interest, but when it comes down to it, they may back out because they weren’t serious, have unrealistic expectations or only want to buy on their terms. Don’t waste your time on those who aren’t serious about purchasing a business, and save the energy for those who are.
6. Thinking you know it all
Many business owners think they know it all, that nobody knows their business like they do and will get caught up in trying to do everything themselves. They try to handle every aspect of the sale when in reality, it should be left to the lawyers, accountants and business brokers to work together to make a sale happen. When the seller doesn’t ask for help and the deal doesn’t go through, they will often blame others, but really they were their own worst enemy by trying to do it all themselves. Not using outside advisors, such as a professional business broker or intermediary, can be a serious mistake in achieving the highest value, etc.
7. Not understanding the structure of the deal
The price is only one piece of the deal – however many sellers will see the price on an offer and say “no” without understanding how the deal is structured. The structure of the deal is arguably more important than the price alone. The terms and conditions of the deal are where the negotiations can happen that allow for flex on the price.
8. Not being able to walk away from the deal
It can be easy to get so wrapped up in a deal that you lose sight of the big picture. You may not recognize when a deal is a “bad deal”, and when to walk away and move on in order to save your time, resources and sanity. Sellers don’t want a deal to get away, but in some cases this is what needs to happen in order to move on and find the right deal and the right buyer.
9. Waiting too long to sell
Too many owners wait until the last minute to decide to sell their business. They wait until business is down, or they are completely burned-out, or their business partnership has soured completely. The time to sell is before the emergency happens. The time to sell is when business is good. The time to sell is prior to when exasperation hits. The old adage is that a business owner should think about and plan the eventual sale of the business the day after it is started or purchased.
10. Changing your mind
One of the worst things you can do while in the process of trying to sell your business is change your mind. It happens more often than you think – just before closing, the seller realizes they don’t really want to let go of their business and backs out. This not only wastes time, energy and resources, but could also deter buyers away from your business in the future if you decide to sell again. Allowing the potential buyers to have full trust in you is a key to selling your business. Wait until you are absolutely sure you want to sell, that way you and everyone involved can feel confident in the process.
This is what business brokers and M & A professionals here at ABA deal with every day, equipping them to help you prepare honest and valuable answers. So if you’re interested in hiring a business broker in Chicago, the Chicago Suburbs, or the State of Illinois to help you sell your business or consult on an exit strategy, contact us here or schedule a free consultation by selecting a date and time that works best for you.
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