Selling Your Business Mistakes That Can Cost You Millions
Some mistakes cost you time. Others may cost you embarrassment. But mistakes made when selling your business can cost you millions. For many business owners, the selling process is uncharted territory. Small business owners spend their time concentrating on building their business and tend to put very little thought into selling. So they are unprepared both practically and emotionally when they finally decide to put their company on the market.
Here are some common mistakes owner make when selling their business:
1. Trying to hide problems. Transparency is not negotiable. Buyers are relentless when it comes to identifying and quantifying any potential risk. Inevitably, they will find the financial, operational, or other issue that the seller is attempting to conceal. Trying to hide them or gloss them over will undercut your credibility as well as reduce the value of your company. It also hands the buyer an edge in negotiations, which they can use to bring down the price, costing you potential millions in the process. But to be transparent, you have to know what the problems are, so conducting a thorough reverse due diligence exercise is essential. Pretending the blemishes aren’t there or ignoring them can cost you big money.
2. Complacency. After working hard to make their business a success, some owners take their foot off the accelerator once they decide to sell, thinking their job is basically done. Slacking off, even a little, can hurt the value of your company; a small dip in revenues and profits can significantly reduce the purchase price. It’s also crucial to pay attention to trends and changes in your company’s industry because an industry downturn can materially impact the valuation multiple as well.
3. Waiting too long to sell. Waiting to sell a business until you need to is a surefire way to lose money. The only way not to lose money is to sell it when you want to but don’t need to. That keeps you in the drivers’ seat and enables you to walk away from a bad offer that could cost you millions.
4. Failing to obtain an accurate valuation. There’s a careful line to walk between maximizing the value of your business and overvaluation. In my experience, owners rarely, if ever, undervalue their company, but overvaluation is a common problem and it usually happens when an owner wants to quantify the effort, time, and emotion it took to build a successful business. In short, they want the buyer to pay extra for their emotional ties to the business. That is both unrealistic and impractical. Too much attachment is simply bad for business and can make it difficult to sell your business for its appropriate price. Getting a valuation helps you better understand the market reality of your exit value.
5. Not hiring the right advisor. Creating a successful business requires special skills. So does selling a business. Finding the right advisor is one of the most important decisions you’ll make and one that can mean the difference in millions of dollars in sale price. Don’t be suckered in by unrealistic promises. If they seem to be too good to be true, they are. Take the time to find the right professional for you and your business. Once you do develop a game plan together, keep the lines of communication open so you stay on track. An experienced advisor can make the selling process far less stressful and far more profitable.
We help prepare companies for sale by helping owners avoid mistakes that reduce company value. If you’re considering exiting your business—now or in the future—leverage our expertise to transition your business to your family or your employees or to sell to our extensive network of strategic acquirers for the maximum payout.
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