10 Critical Mistakes When Selling Your Business

You’ve spent the best part of your life building and creating a business that has provided you with so much…. it has provided you with a living, a creative professional outlet, a reason to get up in the morning, professional joys and challenges, an opportunity to lead others, create future financial security for you and your family… why ruin all that you have worked for by erring when it comes to what will be the biggest sale of your lifetime. A seemingly small error that could cost you and your family hard earned dollars. Do you really want to risk that? From my experience in selling small business practices I’d like to highlight the following pitfalls that I have personally seen that have cost others their dream retirement. I do this in the hope that you will avoid these:

1. Wrong price
Too high is bad and too low can be very costly.
Despite the old saying that "there's a sucker born every minute" the reality is that if the price is too high many buyers won’t bother to investigate the opportunity and no one wants to be seen as a sucker. Ultimately the offer has to be taken off the market and time taken before remarketing can take place. Worse still there is a large price drop required. If it is too low, you will first up be losing money but also be subject to a negotiation in which you can only lose more.
I find that most sellers don’t know the value of their business in the same way they don't know the true market value of their home. What to do? Ask a broker and get a proper valuation.

2. Inadequate Financial Records
Private businesses are set up to minimize tax, not show maximum profits. However this makes for a low valuation. The answer is not to pay more taxes but to keep thorough and accurate records to show earnings and cash flow attributable to the business. Nothing kills a deal quicker than an inability to produce accurate reports from at least the last 3 years.

3. Doing it yourself
Selling a business is a complex legal, financial and time consuming process. Because of the process and the many often emotional decisions that need to be taken you are best advised to employ a business broker. A good business broker helps you maximize the purchase price you receive by canvassing the marketplace appropriately, driving the execution of the transaction and adding value through effective negotiations.

4. Negotiating too hard
You should negotiate hard but not to the detriment of a successful outcome. It is better for the seller that the surviving company be successful. Here again a broker will work on your behalf to negotiate a win-win situation where everyone is happy with the outcome.

5. Demanding an all cash deal and no handover period
Some buyers are naturally suspicious of sellers who demand an immediate cash settlement. It suggests desperation or a lack of transparency on the real situation. Most seek to have a period of time during which the price paid actually relates to the performance promised. This is particularly true in professional practices where individuals are key to retaining clients. Buyers will also pay a substantial premium for seller financing. Sellers should keep an open mind on exit dates and financing - both of which may get an even better deal.

6. Selling to the wrong buyer
The best buyer is one whose philosophy and experience is synergistic with that of your practice and has a real motivation to buy. If the chemistry is not right with the person you are dealing with, terminate the negotiations. The aftershocks can be catastrophic.
Often selling to a direct competitor, employee or supplier improperly without full confidentiality can be a mistake. A competitor seldom pays full value and if the deal falls through they gain huge confidential information. An employee rarely has the money to pay full value and seller is at risk of getting paid. Suppliers have the problem of becoming competitors to their suppliers when they integrate forward or backwards.

7. Non qualified prospects
Beware tyre kickers, bargain hunters and general time wasters who can burn up a significant amount of your time, energy and money.
The first 2 questions a buyer asks is “why are you selling?” and “what are your financial results?”, therefore you should ask the prospective buyer the same equivalent questions.. “why are you buying?” and “what is your financial capability in purchasing our firm?”.

8. Lack of preparation
Many businesses come to the market without a single idea of what is involved in the sales process and what they want to get out of the sale. If you are poorly prepared, it will show, frustrate buyers and waste everybody’s time. The end result is NO SALE. Do not underestimate the costs and effort it will take to get a positive result. Treat it as an investment to get optimum sale value.

9. Timing
The best time to sell is when you don’t have to particularly when the business is on the upside and profits and turnover are at, or near their best. There can be a substantial variation in price depending upon the business cycle. It can be very hard to justify a great price and do a deal when your turnover and profitability are in decline. The mistake is that owners sit and wait for the "right time". If your business is not ready for sale - then get active and improve its performance - start a new business drive - employ better staff - fix your systems - cut your costs. Get the business ready for sale.

10. Why do you want to sell?
This will be one of the first questions a buyer asks you. Give some serious thought to why you want to sell. If you have not deliberated and come to the firm decision that you are going to sell, don’t start the selling process. Some common reasons include retirement, health, capitalisation or a career change. Be sure that you want to sell the business and have a solid reason why you want to walk away. Naturally if you find there are too many problems and you are tired - then this is perhaps not the answer to the seller's question. Take a break - get refreshed and then actively work with your broker to get the business in the market.