Most sellers don’t assume the exit from their company will be easy. Still, many are shocked at just how difficult it can be to get a good price in a reasonable timeframe, particularly in the prevailing economic climate. While waiting can be frustrating, it is important not to let frustration affect maximising the sale.
Most difficulties sellers encounter can be avoided by having correct information about the pitfalls of selling in the current market. There are many challenges to surmount during a business sale, but here we list the ten factors that can have an impact on the sale and a seller’s peace of mind.
Lack of preparation is the most common blunder that small-business owners commit. Before hanging a “For Sale” sign up to sell a house, you would make sure it was in optimal condition for viewing, and in the same way, it’s essential to address certain aspects of your business before listing it for sale. Financial documents, sustainable profitability, lease matters, and staff problems are among the concerns that will impact not only salability but also the price a client is willing to pay. Another thing to acknowledge is that the time to start preparing for the sale is now! Most brokers advise owners to begin the preparation process a minimum of two years before actually listing the business.
Being confident that you can sell your business at a reasonable price is fine, but don’t let your confidence cause you to skip activities that are required to make your sale an actuality. Many sellers enter the selling process with the belief that they will receive X amount for their company solely because they consider that is what it is worth. In reality, value is based on quantifiable numbers, not the owner’s personal opinion of worth. To sidestep this mistake, get an expert third-party valuation, or visit websites to view similar businesses for sale, early on in the process. Once you identify an appropriate assessment for your business, take a look at areas you could improve that could bring an increase in value.
Unwillingness to Hire Professionals
You’re an expert at managing your business, but this is unlikely to mean you are an expert at selling it. It’s continually surprising how many sellers are reluctant to hire a business broker to expedite the sale of their business. It may be helpful to save the 10% or so in brokerage fees, but in most circumstances, a broker will add at least 10-12% to the sales price. Even if a for-sale-by-owner approach makes sense at times, most owners will save themselves a ton of time and hassle by hiring a broker to handle preparation, presenting the business to likely buyers, marketing, and negotiating. Furthermore, leveraging the expertise of other professionals such as accountants, lawyers, and financial consultants is also beneficial.
Taking a Hands-Off Approach
You might think once you hire a broker; your work is done. That is not so, but many sellers make the error of disengaging from the process once they have a broker on board. Although a broker works hard to market your business, you are the one with inside knowledge. Also, once the broker has gained a qualified buyer or two, you’ll play a pivotal role in inspiring confidence in the business. Your interaction with the inherent buyers will have a significant influence on whether your company sells.
Failure to Pre-Qualify
Early pre-qualification of buyers is necessary for a successful business sale. Sellers typically want to bypass qualifying candidates too soon in case they scare the prospects away. But, more often than not, pre-qualifying attracts prospects into the sale. Pre-qualification also protects sensitive data about your business from getting into the wrong hands and guarantees only serious buyers see important details of the sale.
As a seller, you want to represent your company in a great light. But there is a big difference in representing your business well and misrepresenting your business to potential buyers. During the selling process, you may be motivated to inflate numbers, misrepresent projections, or not reveal problems. However, misrepresentations can put your prospects off completely when they review the real financial data.
Novice sellers tend to set a price (usually too high) before they’ve ascertained the true value of their business. This is a big mistake as price is the most critical factor in concluding how long a business takes to sell. Sellers who have conducted a careful evaluation process before deciding on an asking price are in s better position to maintain that amount and to obtain the benefit of a quicker, smooth sale.
Only Considering All-Cash Offers
All-cash sales are unworkable in today’s businesses-for-sale marketplace. They can also be negative for sellers from a tax viewpoint. Instead of handing over a wad of banknotes when closing, today’s buyers are more inclined to ask for concessions with seller financing, partial payments, or help in securing third-party financing. The advantage to the seller is that by spreading sales receipts over a multi-year term, you can avoid higher tax brackets.
Confidentiality is essential. If the news gets out that your business is for sale, it could negatively affect sales and your relationship with your staff. A good broker knows how to market your business and maintain strict confidentiality simultaneously. If you’re going for a for-sale-by-owner approach, it’s a bit more complicated, but it can be achieved by targeting your marketing endeavors only to a small number of possible prospects.
Failure to Look After Transition Issues
Many sellers are so focused on selling they neglect the transition process that occurs after closing. Some buyers will request the seller remains on board for a month or two to help with training and the transition, while other buyers would rather make a clean break. Either way is acceptable as long as both parties have discussed the transition period and decided on a mutually agreeable arrangement through negotiations.