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August 16, 2023
For small business owners, the decision to sell their beloved venture can be both an exciting and nerve-wracking prospect. Whether it’s to explore new opportunities, take on a different venture or simply retire, selling a small business requires careful planning and execution.
One of the most detrimental mistakes an entrepreneur can make is neglecting to adequately prepare for the sale. Buyers are meticulous in their due diligence, and they are likely to closely scrutinize a business’s financial records, operations and legal compliance. Failing to organize and present this information professionally can deter potential buyers and lead to unfavorable valuations.
You can avoid this mistake by devoting ample time to preparing your company for sale. Clean up financial records, organize important documents and ensure that your operations are running smoothly. Hiring a business broker or consultant can also be beneficial in guiding you through the preparation process.
Small business owners often have strong emotional ties to their companies, which can lead them to overvalue their worth. An inflated asking price can turn off potential buyers, prolonging the selling process and potentially forcing them to settle for a lower price in the end.
To avert this, conduct a thorough business valuation, taking into account factors such as financial performance, market trends, growth potential and industry benchmarks. Realistic pricing can attract more serious buyers and increase your chances of securing a favorable deal.
Do you know that 80 percent of businesses listed for sale don’t actually sell? Founder and CEO of Seiler Tucker, Michelle Seiler Tucker, who has helped more than 500 businesses grow and sell for a high price, says, “The number one reason is a business owner never thinks about selling until a catastrophic event has occurred. Most businesses don’t plan their exit.”
She explains, “Most of the time, people think of exiting when they’re diagnosed with an illness, going through a divorce, or something else that is causing them stress from their personal life. This limits the way that the business could sell because there are no processes in place for it to be transitioned — it’s not a business, but rather a glorified job. And when you’ve just got a glorified job, there is nothing to sell.”
On the other hand, it is important to understand that selling a business takes time, and rushing the process to close a deal quickly might lead to poor decisions and missed opportunities.
Tucker recommends building a company up without any intentions of selling it, so that you can ensure getting all the money and value out of it that you can.
Failing to assess current market trends and industry conditions can prove detrimental to any selling effort. Economic shifts, changing consumer preferences and technological advancements can all impact the value and attractiveness of a business.
This misstep can be taken care of by staying updated on industry news and market trends. Also, timing your sale strategically can significantly impact your chances of attracting buyers and securing a higher valuation.
Accurate and well-maintained financial records are vital when selling a company. Buyers want to see evidence of a stable and profitable venture. Poorly kept records or questionable financial practices can raise red flags and scare away potential buyers.
Ensure that your financial records are accurate, in order and have been thoroughly reviewed by a professional accountant if you want to avoid this mistake. Transparent financials build trust with buyers and improve the likelihood of a successful sale.
Some small business owners fail to maintain confidentiality during the sale, which can lead to detrimental consequences. Careless disclosure of information or data leaks, until the timing is right, can confuse potential buyers, destabilize employee morale and motivation, and even hamper the business’s reputation.
As a solution, you may ask potential buyers to sign a non-disclosure agreement prior to negotiations. You might even consider working with experienced professionals to maintain confidentiality throughout the process, safeguarding your company’s reputation and relationships with customers and suppliers.
Pinning all your hopes on a single buyer can be a risky strategy. If negotiations with that buyer fall through, you may have to start the selling process from scratch, wasting valuable time and resources.
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To avoid this mistake, engage with multiple potential buyers simultaneously. This approach not only increases your chances of securing a deal but also allows for more competitive offers, potentially driving up the final sale price.
There are many legal and financial considerations to consider when selling a business. Engaging professionals like business brokers, attorneys and accountants can streamline the process and maximize the value of the sale.
As a preventative measure, consider planning your exit strategy well in advance and seek advice from experienced professionals who can guide you through the selling process. You can connect with the U.S. Small Business Administration for local guidance in planning your exit strategy and achieving a successful outcome.
Selling a company is a significant business decision that requires careful planning and attention to detail. But being prepared, realistic and open to seeking professional advice to navigate this complex process can help you secure the best outcome for both you and your business’s future owners.
Want more? Escalon can help ensure that your accounting, financial records and taxes are accurately done and that they communicate the full value of your business to potential buyers. Talk to an expert today.
Neha De is a writer and editor with more than 13 years of experience. She has worked on a variety of genres and platforms, including books, magazine articles, blog posts and website copy. She is passionate about producing clear and concise content that is engaging and informative. In her spare time, Neha enjoys dancing, running and spending time with her family.
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