Considering the years of hard work and sacrifice building a successful business requires, entrepreneurs deserve to maximize their profits from selling their company when the time comes. Unfortunately, many small business owners trying sell their business make a number of mistakes that can cause them to receive significantly less than what their business is worth when completing the sale.
Selling your small business doesn’t have to become an uncertain affair filled with potentially perilous missteps. By understanding where problems usually arise, you can become better prepared to handle the hurdles of selling your business, and receive maximum value for what you’ve worked so hard to achieve. With that in mind, here are five common mistakes made by entrepreneurs when selling their small business.
Not Planning Ahead
Failing to plan in advance can cause many entrepreneurs to miss the perfect opportunity to sell their business. It takes between two and four years on average to sell a small business, making long-term planning a key to any successful sale. By keeping up to date records, a thorough business history, and current sales portfolio on hand at all times, you can better prepared yourself to seize any opportunity that may present itself.
When you’re ready to sell and when you should sell don’t always coincide, so stay prepared to escalate any potential conversations about selling your business should the perfect buyer walk through your door.
Finding the Wrong Person to Represent Your Business
The importance of finding the right consultant, broker, or company to help sell your business is a crucial component of success. Too often business owners settle for the first group or individual they meet with in an effort to get their business listed quickly and the sales process rolling. However, just as the right realtor can help you maximize the value of your home, choosing the right fit to help sell your business can save you time and money in the long run.
Take the time to select the right broker for you, even if it means interviewing more than a few potential choices. Start by asking the right questions, – such as are they familiar with your industry, how much experience do they possess selling comparably sized businesses, and how long have been working in your market – setting realistic goals, and reviewing what former clients had to say. A little diligence at the beginning of the process will save you many headaches at the end.
Failing to Promote or Market
Hiring a broker to handle the sale doesn’t mean you can stop promoting or marketing your business. No one knows your business better than you, which makes you the perfect promoter to market your company to potential buyers. Even as your broker diligently works to find the right buyer for your business, you can still help to generate leads by promoting the sale of your business to interested parties.
If you’re having trouble generating leads on your own, consider turning to your sales staff for suggestions. Whether front of the house staff or account managers, the people most likely to encounter interested parties in your business are those individuals who interact with the public. Staff have a vested interest in making sure the right fit takes over a business, so don’t underestimate the value of their input.
Asking for Too Much or Too Little
While asking for more than your business is worth can leave you without any prospects, selling too low can leave you at a disadvantage negotiating a final price.
Trying to get top dollar for a business that under generates revenue will only scare away potential leads that may otherwise seriously consider making you an offer. Before deciding on an initial asking price, you need to consider a number of factors, including your marketplace, the current economy, the price of similar businesses, and your industry.
Setting too low an asking price can send several messages to any potential buyers. Has the owner become burned out and just looking to unload; do they suffer from an illness and feel forced to sell; is there something wrong with the business that’s not being disclosed. Each of these reasons could lead to you receiving a low-ball bid for your business or potentially scare away a potential buyer.
Selling to the Wrong Person
While receiving a lump sum, cash payment would be the ideal way to sell your business, not every buyer has the capital on hand to make such a clean purchase. Even though you may feel tempted to take the first offer you receive, especially if it meets or exceeds your asking price, you need to consider whether this is actually your best offer.
Selling your business for top dollar is great, but not if it requires you to enter a long-term contract that provides very little money upfront. Most businesses see at least a temporary drop in sales following new ownership, and whether sales come back up can greatly depend on the business acumen and leadership of those now in charge. Any deal that depends on the business continuing to succeed once your gone in order for you to receive what’s owed requires serious consideration.
About the Author: John Nickelbottom is a freelance writer.