The 10 worst mistakes you can make when selling your privately owned small business
by: Barry Evans
Thinking about selling your business? You are not alone. CNN Money reports that 35 million baby boomers are expected to retire between 2000 and 2020. If you are approaching retirement or soon will be, chances are you?ve considered putting your business on the market for one of the following reasons:
- You feel burned out;
- Industry conditions have changed;
- You are facing health issues;
- Your business has matured and plateaued;
- Your business is doing well;
- It?s a good market for the sale of a business.
In the end, no matter what your scenario or reason for selling, your objective is to get the most money for your blood, sweat, and tears. Here are ten mistakes not to make when selling your privately owned small business:
1. Not Knowing Your Business?s True Market Value:
Different buyers will have different perceptions of value and some will pay far more than others. Unless you know your business?s range of value you are handicapped in the process. Knowing value is always the best starting point when you plan to sell your business.
2. Having Customers, Employees and Others Know that you are Planning on Selling:
Keeping the entire process completely confidential is essential, otherwise you create the risk of losing employees, customers, and vendors. This will negatively impact both value and marketability.
3. Stating an Asking Price:
Putting a price on a business creates a ceiling. If you are able to find that ?value added? buyer who will pay a premium for your business, a stated price may result in a lot of money left on the table.
4. Providing Seller Financing:
There are a number of lenders who will finance buyers wishing to purchase privately owned businesses. Your objective should be to get ?cashed out?. If you do provide any financing, it should be a small percentage of the sales price.
5. Allowing the Buyer to Control the Process:
If you allow interested buyers to dictate ?what? and ?when?, you will find that you end up going through lots of processes (such as due diligence) numerous times rather than only once, which should be done solely with your prevailing buyer.
6. Not Having Multiple Buyers Involved in the Process:
There is an old saying in the mergers and acquisitions industry: ?one buyer is no buyer.? This simply means that with three or four buyers competing for your business you are more likely to end up with the best possible transaction regarding price, tax
structuring, getting cashed out, and having a low litigation risk profile.
7. Not Understanding Essential Tax Issues:
After tax dollars in the sale of a corporation can vary between 45% and 85% of the sales price based solely upon tax structuring issues. This means that you need to understand the process before you start the process.
8. Neglecting Your Business While Trying to Sell the Business:
Psychologically, once you decide to sell your business there is an inclination to slow down or spend time on the selling process to the detriment of the business. If you do this, earnings will suffer and it will lower your business?s value, negatively influencing marketability.
9. Handling the Process Without Professional Help:
If you are struggling with the decision to hire a professional to help sell your business, consider these gruesome war stories about people who have traveled this path alone and ended up:
- Paying more in taxes than they might otherwise have had to;
- Sold far below their true range of value;
- Financed the buyers and ended up not getting paid;
- Spent time and money during the process and still did not get their businesses sold;
- Ended up with poor legal documentation resulting in legal problems. Typically, the sale of a privately owned business involves a large percentage of the seller?s net worth. Don?t begin your learning curve at ground zero.
10. Paying Front End Fees to Merger and Acquisition Firms or Brokers:
If you elect to get professional assistance you are advised not to pay brokers and others front end fees other than the necessary fees to close the transaction. Many firms in recent years have collected substantial sums of money from clients without ever selling their business. Ultimately, how you sell your business is just as important as how you run it. Do your research and carefully consider engaging the services of an experienced, proven professional with a stellar reputation.
About The Author
Barry Evans writes about
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