Selling a small business that you built from the ground up can be one of the most difficult and emotionally charged decisions an entrepreneur ever makes. You’ve invested countless hours and untold effort in turning a vision into a thriving company. Now that you’ve decided it’s time to exit and move on, you want to ensure the business continues succeeding while getting maximum value for the sale.
However, this complex transaction is filled with potential pitfalls that can damage these goals if mishandled. Even experienced entrepreneurs often make serious mistakes during the sales process that inhibit their payoff. To avoid leaving money on the table or derailing your deal altogether, be aware of these four common errors sellers make when divesting their small business.
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Not Having Accurate Financial Records in Order
One of the first things potential buyers will want to scrutinize is the company’s financial records. They want to analyze historical revenue and profit trends to estimate future performance and value. If the records are disorganized or contain errors and inconsistencies, it raises red flags about the health of the business. You may also struggle to answer buyers’ questions or back up claims about growth and earnings. Before putting your business up for sale, take time to get the books fully updated and audited before putting the business on the market. Being able to produce comprehensive, accurate financial statements quickly makes a strong impression.
Overvaluing the Business
Determining the right asking price for your business is tricky. While you may want to maximize the sale price, overvaluing will turn off prospective buyers after they do their due diligence. They’ll see that the asking price is unrealistic compared to market value and earnings forecasts. Work with a qualified business appraiser and financial advisor to conduct a thorough valuation based on assets, market comparisons, discounted cash flows, and earnings multiplier methods. Price the business correctly based on this expertise, even if it means lowering your initial expectations. Setting a fair price creates more interest and better offers.
Keeping the Sale a Secret
Some business owners try to put out feelers to sell their company without making it public knowledge. However, this limits the potential buyer pool and interest level. The best way to maximize value and get optimal bids is to run a transparent sales process that generates excitement and competition among buyers. Hire an M&A advisor to help craft a sales strategy that includes actively marketing and promoting the opportunity through databases, online listings, email outreach campaigns, and advertising. The more qualified buyers that know your business is for sale, the better.
Refusing to Negotiate
Entering negotiations with buyers can make sellers uneasy, as they don’t want to get talked down too far or give up too much value. However, refusing to negotiate at all or being stubborn on price usually stalls or kills deals. An owner to be willing to discuss pricing, terms, concessions, and contingencies with buyers. Approach it like a conversation aimed at finding win-win compromises versus a combative tug-of-war. If you stay rigid on certain points that matter to buyers, they’ll likely just walk away and find another opportunity. Negotiating skillfully helps ensure you achieve a successful deal and exit.
Selling a small business is complex, which is why mistakes like these happen often without the right guidance and preparation. Work closely with financial and legal advisors to develop a smart sales strategy based on accurate valuation, effective marketing, and willingness to finesse the deal through thoughtful negotiations. Avoid knee-jerk emotional reactions. With patience and diligence, you can fully capitalize on this major transaction and enable the business to thrive under new ownership.
