Seven Deadliest Mistakes When Selling Your Business
By Emery Ellinger
- Owner is the Key Employee
- Being Unrealistic About the Price
- Not Being Prepared to Sell
- Selecting the Wrong Buyer
- Waiting Too Long to Sell
- Selling Your Business Without Professional Advice
- Negotiating with Just One Buyer
The number one deadliest mistake a business owner can make when trying to sell his business is being the key employee. The best way to add value to your business is to have a management team and staff that knows your business, and wants to stay on with the new buyer. A buyer’s risk goes up considerably if the only key employee is the seller; consequently, the buyer will generally offer less money and want an extended transition period with the seller.
The second deadliest mistake a business owner can make when selling his business is being unrealistic about its value. While it may be fine to ask a higher than normal price, most buyers will simply politely move on to the next business for sale if they believe the seller has unrealistic price expectations. In the “information age” buyers can source all types of data within minutes. With key information in the buyer’s hands, the seller is reducing his chance of success with asking a price that is “out of the ballpark” and then not being willing to come off that price. So the real key is being more flexible and understanding there are market multiples for your business. In today’s tough credit markets, a seller should expect to offer some seller financing and a lower price to sell his business.
The third deadliest mistake is not being prepared to sell the business. Most business owners have never sold a business and get overwhelmed with the process. Having accurate monthly financials with at least 3 years of tax returns is critical. Buyers will ask for breakdowns by customer and other segments so that they can accurately understand what is driving the business. To provide credibility and experience in the financial due diligence phase of selling a business, it is important to have a good CPA.
The fourth deadliest mistake is selecting the wrong buyer. There are too many stories of owners not receiving their full payments because the buyer ran the business into the ground. Selecting a qualified buyer who has the necessary experience, management skills and financial strength to buy the business is vitally important.
The fifth deadliest mistake is waiting too long to sell your business. This mistake has really shown its ugly head during this economic downturn. Baby Boomers have been trying to retire and probably never thought they would have to go through such a downturn right when they want to sell their business and retire. Any issue such as the business owners getting burnt out, the owner having health issues and/or the business losing a key customer can make a business become virtually unsellable or sellable at a much reduced value.
The sixth deadliest mistake business owners make is selling their business without professional advice. This advice comes from an array of resources including CPAs, lawyers, business brokers, business coaches and others. Many business owners that do not have a well planned exit strategy just close their business because they cannot find a buyer, or they leave a lot of money on the table when they sell. Third party professionals can help business owners get more money, with fewer taxes in many cases, yet only 10-20% of business owners use a third party intermediary.
The seventh deadliest mistake is only talking with one buyer. If you do not have several buyers, then your chances of receiving the highest and most money for your business is greatly reduced. You should create an open and competitive marketplace for your business. If the buyer knows there is other competition, the buyer will be more willing to offer more money or better terms.
In summary, if the business owner plans his exit strategy then he will receive the highest valueforhis hard-earned work. This planning takes outside help and effort, and the results can be very rewarding.
About the Author
Emery Ellinger is Chief Executive Officer of Aberdeen Advisors, Inc. Emery was the # 1 Top Dollar Producer in theSoutheast for selling businesses in 2008 for BBN, America’s Largest Network of Business Brokers. Emery advises and sells businesses in the healthcare, manufacturing, business services, distribution and technology industries. For more information visit us on the web www.aberdeenadvisors.com or call 727.369.8204