Top 3 Mistakes to Avoid When Selling a Small Business

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Top 3 Mistakes to Avoid When Selling a Small Business
June 9, 2014

Selling your small business marks a major transition point in your life. There are deep emotions involved in removing yourself from a venture that took up so much of your time and energy, and that you likely considered a labor of love. Do not let poor decisions in selling your small business ruin your transition.

Here are three of the top mistakes that small business owners can make during the selling process:

  1. Poor Preparation and Planning – Selling your business is not as easy as sticking a "Business For Sale" sign in your window. A proper sale takes many months of planning and preparation – a typical recommendation is to start two years in advance of an anticipated date of sale. This gives you time to evaluate your business objectively and form a solid exit strategy.

    Are your finances, cash flow, and assets in reasonable shape? Do you have any property, lease, permit, or regulatory issues to resolve? Is your vendor base reliable? Do you have systemic problems with staffing or frequent turnover? Is your customer base loyal and are they likely to remain so if you sell?

    The answer to these and similar questions will be important to potential buyers who are trying to assess how much to pay for your business and whether they can be successful in taking it over. Keep your records and evidence of good business health updated and available so you are ready when the right offer comes along. Have a sales pitch prepared to show how the buyer could succeed.

    It is also important, but really difficult, to objectively assess the value of your business. You can search comparable businesses on business-for-sale sites like Bizbuysell.com, but usually it is best to pay to have it professionally appraised.

  2. Poor Choice of Broker – You shopped around for a lender when you originally started your business. Why wouldn't you shop around for a broker when you sell it? For many small businesses with established clientele – such as dental practices, insurance agencies and restaurants -- this approach makes good sense. For more distinctive businesses, this may not be the case.

    If your business lends itself to being sold this way, find a broker you trust, one who understands your wishes and vision for the business after you are gone. Understanding your type of business is a huge bonus. Do not disengage yourself after hiring a broker – interaction with your broker is important. You and your broker must be comfortable with frank talk.

    Generally, the only thing worse than a poor choice of broker is choosing no broker at all and attempting to do everything yourself. Don't be overconfident in your abilities. You may have the best understanding of your business, but do you have the best capability to market and sell it?

  3. Selling to the Wrong Person – You could be leaving yourself in jeopardy by selling to a buyer that is likely to fail and unable to fully execute the transaction. Consider pre-qualifying the buyer through an exchange of financial information with confidentiality agreements. Rather than scare buyers away, this tactic immediately identifies serious buyers and keeps you from wasting your time.

    You may have emotional attachments to the business that come into play here. If you are in a position to do so, make sure that the buyer's strategy fits your expectations. Don't walk away regretting your decision to sell.

    On the other hand, if you are in a spiral of debt, you need to consider at what point you should cut your losses. Don't wait too long searching for the perfect deal. If you have done your homework on valuation, you have a pretty good idea of what is a fair deal, or at least the best deal you are likely to get in this situation. Set a low threshold bid value that you can accept.

With planning, precautions and assistance, you can enjoy a successful sale of your business and move confidently into the next phase of your life, whatever that may be. We hope you have to spend a long time counting your money!

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