17 Jul Mistakes Business Sellers Make
I’m convinced most business owners think high-value business sales just kind of happen. You run into a guy on a plane, or the phone rings one day and a sweet deal takes place. This misconception takes root from the sound bites heard at the club, or on the news. You don’t see or hear about the work that was involved. Moreover, in my nearly 20 years working on business purchase and sale transactions, I’ve come to believe that common sense does not lead sellers down the right path. Do-it-yourselfers make all kinds of mistakes. Here’s my stab at warning you away from the common ones.
Confidentiality Is the Plan, Rather Than a Part of the Plan. When “quiet and confidential” is the number one goal, business sellers will tend to talk to buyer candidates as they run into them, one at a time, over years. And, over time, the grapevine does its dirty work, and soon you’re the only one who thinks it’s on the down low. You lose credibility and cachet. A better approach is to wait until you are really ready and then talk to all the good buyers at once, work them against each other, pick the best, and get the deal done.
Talk to Buyers Before You’re Sure You Want to Sell. This is a total waste of time. It may stroke your ego, and many do it, but you gain nothing. You lose time that could have been better spent elsewhere. You lose credibility, and when the day comes that you are really ready, you’ve already cried wolf. If all you want to know is what someone would pay, ask a business broker.
Court the Buyer Like You’re Choosing a Spouse. Look, this is a business deal. They don’t have to love you. Give them the facts. Then they name a price and terms. Long dinners with wine are not the way to get a great deal closed. Ask them how much money they have and how much they will pay. Be friendly but don’t overdo it.
Ignore Buyer Concerns. Buyers don’t need to be coddled, but they must be given the data. They need to know the facts. You must “open kimono.” And when they find a problem, address it. If you want to sell, a problem perceived by the buyer is a barrier to you getting your deal done. Accommodate them. Address their concerns.
Wait Too long. Sell when your financials look great. Like everything, your business cycles. Don’t get greedy. Sell when the trend has been up for a few years. Don’t wait until it’s sliding back.
Don’t Know a Good Deal When You See It. If you don’t know what a good price is, how can you make a decision? The best buyer may in fact be the first. Do your research and know what a good deal is before you talk to buyers. This includes terms that are fair.
Don’t Listen. If several buyers pull away for the same reason, maybe you should pull back and fix the problem.
Failure to Prepare. Selling a business is a paper chase. It’s also a sales activity. Get all your documents and sales materials ready before you talk to buyers, including recast financials and strategies for growth. Prepare a presentation package that provides a basic overview to buyers. If you are taking money out in a myriad of ways, that should be presented up front.
Accountant, Lawyer, or Realtor Friend Represents You. Selling a business is a sales activity. It takes dedicated effort. Your lawyer is risk averse. Your accountant is a bean counter. Both charge by the hour. Their paycheck ends when the deal closes. And your Realtor is way over his head when it comes to the complexity of a business transaction. All three are needed, but none will serve you well as the lead.
Alternatives to Selling Are Not Explored. Selling is a real pain in the tail, and quite drastic. All alternatives should be explored before you head down the sale road.
Business Is Not Priced Properly. I suggest you don’t provide an asking price. All you do is cap the price. If you are serious about selling, and offer it to all high-quality buyers simultaneously, with urgency, you can tell them you will accept the best offer. Obtain the offers and pick one.
A Single Buyer Courted or Relied Upon. Buyers are a dime a dozen. Most will waste your time. What every buyer needs are other buyers to keep the heat on. Courting one at a time serves only the buyer and usually results in wasted time and money.
Failure to Accept Seller Financing. Most buyers have x amount of equity, and the banks will only lend x. You want more? Accept some seller financing. In the worst case, you don’t collect in full on the seller financing but it’s more than you would have received otherwise.
Do It Yourself. I’m biased, but I can guarantee that when I say, “This is a great business,” it will mean more than when you say it. It’s hard to sell (or represent) yourself. That’s why athletes and defendants (and smart business sellers) hire representatives.
Negotiate with Buyers That Don’t Have the Dough. You are prepared to share all about your business. Confidential information. The least they can do, to gain access to this data, is to convince you they have the dough. If they say someone else has the dough, insist you talk to that person directly. If you remain unconvinced, move on.
Act Really Smart. If your ego requires that you convince all buyers that you have it all figured out and run a tight ship, that’s fine, but buyers want a business they can improve. I suggest you check your ego. Ideally (to make a point), you want the buyer to think they are buying a business that it totally mismanaged.
Business Sale Proceeds Will Fund Your Retirement. You fund your retirement over the many years you own your business using the lucrative government incentives. You pad it with business sale proceeds. If you want your business sale to bail you out of your past 30 years of delinquency, dream on.
At risk of repeating, selling a business is a sales endeavor. Do the auction houses coddle buyers? Limit the number of offers?
Yes, you need confidentiality, but the way to achieve it is to only talk to qualified buyers, talk to all of them at the same time, obtain all the offers near the same time, and pick one.
Sure, luck plays a real role in success, but most business owners know vision, initiative, and hard work are how the money is made. They just forget it applies to business sales as well.