6 Mistakes to Avoid When Selling Your Business
There will come a time when you’ll need to sell your business. You may want to retire or try something new, or something might happen that prevents you from managing your company full-time.
Selling a business isn’t easy, especially one you’ve worked hard to build over the years. It can feel a little like saying goodbye to your child when you drop them off at college. It’s an emotional experience, and few people know what to expect once they close their office doors for good.
Business owners often rely on selling their companies to fill a significant portion of their retirement nest egg. If they fail to sell the company at a fair value, they won’t have enough money to rely on during their golden years.
A few typical mistakes can hinder the business sales process and lower the worth of companies. Make sure to avoid these missteps as you prepare to sell your business, regardless of whether you’re selling a family business, a startup, an HVAC company, a dental practice, a software company, or any other type of company.
Mistake #1 When Selling a Business: Failing to Prepare
Selling your business is a lengthy process that can take years. Before marketing your company for sale, you’ll want to understand your various sales options. You’ll also need to learn how the process works and how to maximize your company’s sales price.
A team of advisors can assist you in the sales process. Ideally, you’ll start with a lawyer specializing in acquisitions or general business. Your lawyer should have experience navigating the sales process for other companies that are similar to your own.
You’ll work with your lawyer to decide the timing for bringing in other experts, including a CPA, valuation specialist, and business broker.
You should seek initial advice from an attorney at least five years before you intend to sell your company. The more time you have to prepare, the more flexibility you’ll have to enhance its value.
Mistake #2 When Selling a Business: Overlooking the Potential Emotional Impacts
Selling a business can be pretty exciting; you may entertain offers for large sums you’ve only dreamed of. However, once the ink dries on the paper and you hand over the management of your company to its new owner, you may find yourself at a loss. After all, running your business probably took up a large portion of your time.
You may have spent decades building your company from a small operation to a large one. In the meantime, you’ve resolved numerous challenges and celebrated significant successes. You might have employees you’ve formed close relationships with over time and customers who helped make your company the success it is today.
Leaving all of your hard work and achievements behind can feel like losing a loved one. You’ll need to find another way to fill your time that you find satisfying.
You can consider starting another business if you’re not yet ready to retire. If running another company isn’t in the cards, you may consider philanthropy, spending more time with family, or traveling.
Mistake #3 When Selling a Business: Accepting the First Offer
When you receive the first offer to buy your business, it’s a notable moment. Even more thrilling is getting an unsolicited offer. After all, if people are expressing interest in purchasing your business, it must be a pretty attractive venture.
However, it’s important not to give in to pressure to sell your business immediately. You can likely attract even better deals if one or two people are interested without much prodding from you.
It’s best to hire a business broker to help you navigate offers to buy your business. A business broker can help you understand the terms of the sale and advise you if your offers are fair or if you should ask for more money. They’ll also help you locate buyers who align well with your company’s vision and values.
Mistake #4 When Selling a Business: Asking Too Much for Your Company
While you certainly don’t want to accept an offer that’s too low for your business, you don’t want to push away potential buyers with a price that’s too high. It’s nearly impossible to determine a reasonable asking price for a business without a valuation.
A valuation involves formally assessing your organization’s current financials, assets, and market presence to determine your company’s worth. A valuation specialist will analyze your customers, income streams, and future forecasted earnings. When they finalize their analysis, they’ll provide you with an estimate of what you may receive for the sale of your business.
Valuations help you determine whether an offer is fair. You can evaluate your proposals objectively and decide which ones best align with your expectations.
Mistake #5 When Selling a Business: Neglecting to Keep Accurate Financials
Some business owners make the mistake of failing to keep up with their financials. Not having accurate financial statements for your company is a major lapse. You should have an up-to-date accounting of your bank accounts, receivables, liabilities, and inventory.
Anyone who reviews your financials should be able to discern your company’s income and expenses. If you have unpaid taxes, you should ensure they’re taken care of well before you start the sales process.
Poorly kept financials will deter potential buyers from purchasing your business. No one wants to put money into an organization that may be facing large debts or has difficulty collecting money from its customers.
Mistake #6 When Selling a Business: Not Working with a Business Broker
A business broker helps market your business among prospective buyers. They’ll ensure your listing is prominently placed and receives the attention it deserves. A business broker also ensures that you maximize the potential price for your business.
Once your business broker finds a few buyers interested in your company, they’ll engage them in the negotiation process and keep you informed. If you have any non-negotiables concerning the sale, like keeping your workforce intact or maintaining the business name, they’ll ensure that the buyers understand your conditions.
If you don’t involve a business broker in the sale of your business, you risk accepting an offer that may be less than you deserve. Search for a broker you feel comfortable with and can trust in your area.
The Bottom Line: Selling a Business Takes Effort
Above all, remember that selling a business takes time and planning. Think of how much work it took to make your company what it is today — you’ll want to exert a similar amount of effort into its sale. Start the process early, and make sure you find the appropriate advisors to help you strike a fair deal.
Do you want to sell your business quickly and confidentially?
Cowen Partners’ business sales approach is notable because we are one of the nation’s leading executive search firms — and we are in touch with potential buyers daily. Our Partners come from a diverse set of backgrounds and skills, ranging from business owners and entrepreneurs to CPAs and financial analysts. This diversity of talent enables the team to guide our clients with firsthand knowledge and experience through all phases of the business processes of building, buying, and selling.
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