Selling a business takes careful preparation, the ability to reach an optimum number of qualified buyers and still maintain confidentiality, and the ability to handle a complex transaction. Most business owners have developed a lot of expertise at running their own business, but are not experienced in selling a business. Without professional assistance, they will often make costly mistakes if they attempt to handle the sale of their business on their own. Here is the first in a two-part series of the most common mistakes to avoid:
- Not understanding the process. Like anything you do in life, there will be a learning curve when it comes to selling a business. Understand the selling process, learn the typical steps and terminology, explore various types of buyers for your business, understand various deal structures and how business sales can be financed to make the most of this once-in –a-lifetime opportunity.
- Selling too quickly. Unless you have to sell the business quickly for dire financial or personal reasons, you should not rush into a sale without first exploring all of your options – both for structuring the sale and for what you will do post-sale. Here again, consulting with an experienced business broker, your accountant, your attorney, and your personal financial planner can pay huge dividends in arriving at the best outcome.
- Waiting too long. Having arrived at the decision to sell your business, most business owners simply wait too long to begin the process. Most business owners are surprised to learn that they should start 2 – 3 years before the very last day they would like to be actively working in their business. It takes time to prepare the business for sale, to gather and package the needed information, to find and negotiate with qualified buyers, to complete the buyer’s due diligence and get the necessary financing, to finalize the definitive purchase agreement and all of the related legal documents, and to actually get the sale closed. Even then, many buyers will want/need the seller to stay on in an employment/consulting role for several months or even a year or longer.
Many business owners have a difficult time grasping the fact that the best time to sell any business is when you don’t have to, and when the best years of for the business still seem to be in the immediate future. Buyers will pay a reasonable premium for such a business. On the other hand, by waiting until the best days have come and gone, and/or you can no longer enthusiastically run the business yourself, the business may appear to be in a state of decline, or the economy may have taken a turn for the worse and buyers will deeply discount such a business, if they’re interested in purchasing it at all.
To be continued…
If you know of a business owner who’s thinking of selling or buying a business and who might benefit from a complimentary, confidential, consultation with us, have them contact me at mertel@legacyadvisorsgroup.com
By: Mike Ertel, Transworld M&A Advisors