A lot of sellers don’t expect the exit from their business to be simple, but many of them are surprised at how complicated it is to sell their business at a reasonable price in a given time frame. However, you should not let frustration get in your way of maximizing the effectiveness of the sale. The many challenges and frustrations encountered by sellers can be avoided if they know some of the mistakes they should avoid when selling a business in our current economy.
Here are some of the mistakes to avoid when selling your business
1.Lack of enough preparation
The most prevalent mistake that business owners make is lack of preparation. It’s vital for you to have the business documents before listing it on the market. Having the right financial document, sustainable profits, lease issues and other records will affect saleability and the price which your business will command in the market. Another factor you should consider is the time for selling the business. Brokers recommend preparing for the sale of the business at least 2 years before you list the business.
2. Overconfidence
It’s not wrong being confident that you will sell your business at a considerable price. That is, unless your confidence makes you neglect activities which are required for sale. Many sellers go into the selling process believing that they will sell the business at a reasonable price just because they think it’s worth the value. In the real sense, valuation is based on specific criteria and not the owner’s estimation of the value of the business. One example of these criteria could be the location of your business. For example, if you have a business for sale in Houston, it might be a bit more difficult to attract potential buyers to this area as opposed to a more metropolitan area like New York City.
To avoid such a mistake, you should get a third party to evaluate the business for you. After you have obtained the right valuation try and address some of the issues which can lead to an increase in value.
3.Unwillingness to hire professionals
The work of a business owner is to run the business and not to sell it. Many owners are hesitant to hire a broker to help them with selling the business for them. If you hire a broker, the chances are that they will charge 10-12 percent of the sale price as a commission. Although there are instances in which selling the business on your own will make sense (especially if it’s to a friend or colleague) when you hire a broker he will handle the essential tasks such as showing the business to prospective buyers, marketing and preparation.
4.Disengaging from the selling process
Some sellers think that once they have hired a broker that their work is done. Even though your broker will do his best to sell your business, no one knows the business as much as you do. You would both be able to sell the business faster if you combine your efforts. It’s crucial to discuss with them how you can get involved in marketing the business without having to step on his toes.
When the broker finds prospective buyers, it will be your duty to convince them that the business is in excellent condition and that it can be managed successfully. Regardless of whether you want to get involved or not, interacting with the buyer will have a significant impact on whether your business sells.
5.Lack of pre-qualifying buyers
The chances of selling your business quickly will be high if you pre-qualify prospective buyers early. Business owners are usually afraid of pre- qualifying buyers because they think that that will scare the buyers away. In most instances, pre-qualifying buyers drives prospective buyers deeper into the sales process. The most important thing about pre-qualifying buyers is that you will avoid cases where your business information will get into the wrong hands. It also ensures that only serious buyers get vital information about the business. Some of the pre-qualification details include financial information and confidentiality agreements.
6.Misrepresenting your business
As a business owner, you will want to portray your business to buyers in the best way possible. Nevertheless, there is a massive difference between representing your business in a good way and misrepresenting it to buyers in a wrong way. You might find that you misquote figures, cover up problems and distort projections. However, misrepresenting your business to buyers can send red flags to them when they get to review the business documents. You should first talk to your broker or attorney about everything that pertains to the business before dishing out the information to the buyers.
Regardless of whether you are selling the business on your own or you will use the services of a broker, using the above tips will help you get the best sale price possible for your business.