13 Mistakes Business Owners Make When They Sell a Business
Every business is different and unique but all have opportunities
and challenges that must be addressed when selling the business. The business
selling process is very complex and time consuming. The potential to make
mistakes are excessive and costs are high.
The best way to eliminate your risk is to acquire expertise in this
area. CORE Business Advisors can bring you the needed expertise to successfully
complete the sale of our business.
Challenges in selling a business:
· Maintaining confidentiality
· Projecting the company’s future
· Showing the potential in assets, people, and processes
· Structuring the deal
· Receiving the highest value for your business
The following 13 areas are real conerns that the business owner
faces that will negatively impact the value of your business. You will need to
know how to deal with these issues to gain the highest value for your company.
1. Failure to provide information
All potential buyers will want information that they can rely on about your
customers, financial history, industry, company operations, competition, and
growth potential. The information must be presented in a logical format while
balancing the confidentiality issue.
2. Failure to continue to run your business
Keeping your business running at its optimal level is a must. Buyers are buying
your assets, people and processes and the results produced by your business.
They want to see the same performance. Taking time away from your business
could result in a lower value.
3. Failure to maintain confidentiality
Confidentiality is critical to selling a business. You do not want employees to
know you are selling because they will seek other opportunities. Competitors
can use this as a selling tool against you. Suppliers may not extend favorable
terms. You stand a greater chance of losing profits and value when
confidentiality is breached.
4. Failure to adjust earnings
To uncover maximum value you need to recast the balance sheet and income
statement of the business to arrive at suitable value. The process is complex
and
is also critical to show the earning potential of the business. Common adding
or subtracting to earnings will be in the areas of owner’s salary,
depreciation, interest expenses, owners fringe benefits and non-recurring
expenses.
5. Lack of deal structure
If a seller does not know the different alternative deal structures he/she is
putting themselves in a real disadvantage. The lack of knowing will probably
cost them thousands of dollars. Real estate leases, non-compete agreements,
earn-outs, and consulting agreements can add significant value to both buyer
and seller.
6. Failure to target enough buyers
Limiting your marketing to 1 or 5 buyers drastically reduces the chances of
gaining the highest value for your business. This strategy loses money for the
seller because it doesn’t allow for other buyers to compete for the business.
To assure yourself you are gaining the highest value you must market the
business to all qualified buyers who would desire your type of business.
7. Failure to qualify buyer
Qualifying a buyer is critical because nothing is worse than wasting time and
energy disclosing confidential information to a buyer when they do not have the
financial capacity to complete the sale. CORE Business Advisors will
pre-qualify each buyer before important information is provided.
8. Selling to the wrong buyer
Your employees could be potential buyers for your company and they may be
willing to pay a good price for the business. However, employees often lack the
necessary cash to complete the sale. You might have to finance a portion of the
sale price yourself or find a third party to finance the deal which makes it a
less desirable option. Competitors may also not be the right fit because they
carry another set of concerns.
9. Failure to adjust for owner’s skill or industry
If the owner can be replaced easily the value of the business generally goes
up. If not, generally it’s more difficult to sale. Even the industry could
increase or decrease the value of the business. Special valuation methods are
sometimes used.
10. Poor or unprofessional negotiating techniques
Poor communication, unprofessional etiquette, lack of negotiating ability often
cost the seller in price and terms - many times the sale will not even be
completed.
11. Failure to meet due diligence requirements
If you are not organized and have the necessary information available for
buyers it could have a major impact on the close of your business. You must be
prepared, organized and ready to defend and confirm all representations.
12. Failure to understand the value of your business
Value is created by the earnings stream of the assets and the business’s track
record. It is critical to understand and properly assess the value detractors
and drivers to improve the likelihood of selling the business.
13. Failure to seek professional advice and consultation
Typically you will need a business lawyer, tax specialist,
financial planner, and business advisor/intermediary to
establish a solid planning team.
