Selling a business is not an easy task, even under ideal circumstances. It is even more challenging when sale preparation is lacking, deficient or misaligned with market realities. Across all sectors and industries, effective pre-sale planning is the key to achieving your desired sale outcome. Simply put, you cannot afford to bungle the critical steps that need to happen before you enter the business-for-sale marketplace.
1. Attempting to Market and Sell a Business Without Professional Representation
One of the biggest mistakes business sellers make is trying to do everything themselves. Very few owners have the time or experience to handle marketing and selling a company alone. Business Brokers and other professionals can streamline the process and ensure that your company is truly ready for prospective buyers. Selling a business is not like selling a house. Once the marketing is underway, in most cases, there are dozens if not hundreds of inquiries from potential buyers that have to be addressed. Serious prospects will ask detailed questions about the marketing package and operation. Then there are the negotiations, arranging the financing, working through the due diligence process, lease negotiations, etc. Pulling together a talented team of advisers should be one of the first things you do after you decide that it is time to sell.
2. Starting the Process With Unrealistic Expectations
First-time business sellers often have unrealistic expectations. For example, many sellers believe their companies are worth more than actual market value and are then disappointed when their (overpriced) business does not sell quickly…or at all! During the preparation stage, it is important to create realistic expectations. By evaluating the recent sales of similar businesses in your area, you can gain more realistic insights about average sale prices and how long it typically takes to sell a business in your industry. It is very common for a business to be marketing for six to 12 months before it sells. Through consultations with your business broker you can also identify the types of concessions sellers or buyers have made to close deals.
3. Timing is Everything
Your personal feelings aside, it may or may not be the right time to sell your business. While a strengthening economy is certainly helpful, it does not necessarily mean that the business succession market is ripe for every business in every industry. Even if the market looks good, it is possible that your position could be stronger six months or a year down the road. Determining the best possible time to sell your business can be tricky. But by consulting with your advisory team, putting yourself in a buyer’s shoes, and identifying the outcomes you want to achieve early in the process, you can uncover insights that impact the timing of your sale. In some cases, it may be better to wait until you have improved the company’s financial situation or until the market is more likely to deliver your desired sale outcomes.
4. Incorrectly Valuing the Company
Valuing a business is a tricky process that includes in-depth analysis of the business and extensive experience in the marketplace. Although there is a tendency for sellers to inflate the value of their companies, it can be equally dangerous to undervalue your business. If the asking price is too low, you may leave money on the table or, worse yet, buyers may assume there is a problem and move on to other opportunities. While your own insight and quick, easy-to-use valuation tools are a good starting point, ultimately, you need the objective valuation provided by a qualified third party. Business brokers who offer valuation services understand the marketplace and have the expertise to provide an accurate measure of your company’s real value.
5. Not Spending Enough Time on Preparation
Many business sellers are surprised by the amount of time and effort it takes to properly prepare a business for the marketplace. From determining value and setting the right asking price to compiling historical financials and other documents, a multitude of tasks need to be performed before you market your business for sale. Ideally, you should begin the preparation process six months to a year before you intend to sell the business.
There are no guarantees in selling a business and you can never be completely assured that you will achieve all of your objectives in the sale of your company. But business owners who approach exit planning systematically and methodically are more likely to maximize their business sale prices and sell on their own terms. To do it right, be sure to start preparing well in advance of actually listing your business for sale and use a business broker with sufficient experience to guide you through the process. QCBN
Dominic Femia is one of seven professional business intermediaries with WCI Brokers. He can be reached at 928-300-6075 or Dominic@wcibusinessbrokers.com. For more information and a free confidential interview, call WCI Brokers at 928-445-1144. Learn more on their website at www.wcibusinessbrokers.com