Issues to Overcome When Selling a Business
At some point, the time comes when you are ready to sell your business. After years (even decades) of hard work building it up, you want to make sure you find the right buyer, and receive full compensation for what you have built. Most business owners understand that selling a business is complicated, but many fail to realize just how much is involved with the sale of this type of asset.
During a business sale, there are several issues that sellers must overcome. Here are five of the most common:
Timing: One of the top mistakes business sellers make is failing to take a sufficient amount of time to prepare for the sale. In general, it is best to start putting together your exit strategy at least a year in advance. There are two main reasons you need this much lead-time:
– It takes time to find the ideal buyer, and you do not want to be in a position where you need to sell within a short period of time. If you need a quick sale, you are a motivated seller, and this means you may have to settle for a price you will not be happy with.
– Business sales are complex, and you need time to have everything in order. In the same way you would clean up your house before putting it on the market, you need to get your business cleaned up so it will be more attractive to potential buyers.
Irreplaceability: What happens to your business if you are no longer a part of it? Have you begun training associates to fill your shoes once you step away? Will your clients keep doing business with your firm after you are gone? If your business cannot yet operate without you, more time might be necessary to rectify this situation.
Failure to Pre-qualify Buyers: Most owners have no experience selling a business. Because of this, they often make the mistake of not pre-qualifying buyers early enough. Many owners believe that if they pre-qualify right away, they will scare off potential buyers and narrow the field. In fact, serious buyers know that this process will be necessary, and by pre-qualifying early, you can weed out the “tire-kickers” and protect vital information about your company that you do not want falling into the wrong hands.
Undervaluing or Overvaluing the Business: The most important factor in determining how long a business stays on the market is price. If the price is too low, the business will sell quickly, but you will receive less for it than you should have. If the price is too high, it will sit on the market too long and continue to be passed over by qualified buyers. Sellers must take the time to conduct a thorough valuation of the business, so the price is in line with comparables in the same industry and city.
Trying to Do Too Much: Owning and operating a business is enough work in and of itself. And when your business is for sale, there is the added work of marketing it, pre-qualifying buyers, negotiating, and many other tasks. The best way to handle this extra workload is to leverage the experience of outside professionals. For example, an experienced business broker can take over much of the work you have a hard time doing yourself. Business intermediaries have access to a much broader market of potential buyers for example, and they can help you more quickly attract the right buyer at the right price.