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Mistakes to Avoid When Selling Your Business
Are you selling your business? If so, make sure you avoid the mistakes listed here to ensure a successful and profitable transaction.
Mistakes to Avoid When Selling Your Business
To ensure a successful transaction
Are you selling your business? If so, make sure you avoid the mistakes listed here to ensure a successful and profitable transaction.
Selling your business?
In 2018 there were 30.2 million small businesses in America. In 2015 small businesses employed 47.5% of the private workforce in the U.S.
But there comes a time in every entrepreneur's life when they are ready to move on and sell their business. While the reasons for selling your business may vary, the goal is to walk away with a tidy profit.
You have to know what you're doing to ensure you sell your business for the most money. And there are tons of mistakes you can make.
If you're looking to sell your business, keep reading. We're sharing with you the biggest mistakes entrepreneurs make when selling a company.
Always Be Prepared Before Selling Your Business
Just like a well-thought-out business plan can help you grow your business, you need to do the same with your exit strategy. It's hard to get exactly what you want when you don't know what that is.
Collect Your Documentation
You'll need to gather a few key pieces of information in order to sell your business successfully such as:
Sustainable profitability projections
Identify and address lease issues
Identify and address staffing problems
No one wants to buy a business that isn't well run and well organized. This information will also help you set the price for your business that's on par with the current marketplace.
Plan Ahead and Start the Process Early
If you really want to be prepared to sell your business, begin the preparation process at least two years before you list it for sale.
Qualify Your Buyers
Another common mistake is not properly pre-qualifying prospective buyers. While you may think that qualifying a buyer too soon will scare them off, usually the opposite is true.
Instead, the pre-qualification process helps draw those buyers deeper into the sale. If you're worried about giving buyers access to sensitive information, have them sign documents such as a confidentiality agreement and financial background information.
This process will help you attract only serious buyers which means you won't waste your time wooing the wrong buyers.
Hire the Right Team
While it may seem like a good idea to try to save some money when selling your business by not hiring professional help, it's usually not. There's just too much at stake.
An investment broker and/or business broker can help you present your company in the best light.
How a Broker Can Help
They know exactly which databases to advertise your business on. They also know how to do the following tasks:
Preparing documents
Identifying buyers
Generating interest
Soliciting offers
They'll also help close the deal as quickly as possible.
How Other Professionals Can Help
But you may also want a transactional attorney to help with the following tasks:
Preparing an asset purchase agreement
Negotiating an asset purchase agreement
Handling documentation such as bills of sale and officer certificates
An accountant can help you structure your deal and help you plan ahead of potential taxes you'll have to pay. And a business appraiser can help you evaluate your business so you know what it's really worth.
Work With Us
Selling a company is a difficult process. It's important to surround yourself with the right team to help you save time, money, and prevent potential problems from arising.
We can help. Our team of knowledgeable experts can help make selling your business easy. Click here to learn how.
BizNexus -Learn More From Our YouTube Playlist:
PREPARING TO EXIT YOUR COMPANY
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THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
3 Tips on How Not to Sell Your Small Business
For an entrepreneur thinking about selling their business, it’s important to know the reasons why it’s sellable, and more importantly why it is not. Just recently, SCORE identified 3 main reasons on how not to sell your business:
3 TIPS ON HOW NOT TO SELL YOUR SMALL BUSINESS
Successful planning will have you laughing all the way to the bank.
If you are going to sell your business, here are three tips on how not to sell your business. Successful planning when selling a business can have you laughing all the way to the bank.
For an entrepreneur thinking about selling their business, it’s important to know the reasons why it’s sellable, and more importantly why it is not. Just recently, SCORE identified 3 main reasons on how not to sell your business:
First reason why not to sell your business
Don’t sell your business if you still love what you’re doing: If you still love your work and feel fulfilled every day, there isn’t a reason to step away from your business. Generally, business owners should look to sell because they want to make a lifestyle or professional change.
Second reason why not to sell your business
Don’t sell when the market is in a downturn: The value of your business is correlated to the market within which it operates – therefore, you should look to sell when business is good, not bad. There’s a caveat to not selling during a downtown-- the downturn must be temporary. If you anticipate growth in the future, hold for the rebound.
Third reason why not to sell your business
Don’t sell to the wrong person: Not all buyers are created equal. If you care about the long-term success of your business after the sale, you should do your due diligence for any potential buyer.
Make sure you’re selling for the right reasons if you really want to exit your business.
With the recent upward economic trend and low interest rates, many small businesses are now attracting interest from potential buyers. In fact, BizBuySell Insight Report found that a record number of small businesses were sold in 2018 for the third straight year.
Buying a business is one of the best ways for companies to enter a new market or increase market share.
The best way to determine your business's actual worth is to hire a third-party accountant or business broker to conduct a business valuation. A business valuation typically starts by assessing the value of your company's current and long-term assets, income statements and receivables, short-term and long-term liabilities, and other metrics that show the financial health of your business.
If you are in the market to sell your business, you need to sell it for the right reasons and at the right time. Otherwise you will be seeing someone else laughing to the bank and it will not be you.
How to use seller financing to buy a business in 2019
There are various ways to go about funding the purchase of a business. A strategic option would be to negotiate seller’s financing with the business seller to alleviate the burden of paying full price for the business upfront. In the U.S., about 60-90% of business sales involve seller financing. Before going through with the purchase, you need to thoroughly vet the business. Because owners rarely finance 100% of the purchase price, you might also need to find other sources of funding, such as a bank loan.
There are various ways to go about funding the purchase of a business. A strategic option would be to negotiate seller financing with the business seller to alleviate the burden of paying full price for the business upfront. Jessica Fialkovich, President of Transworld Business Advisers - Rocky Mountain explains how this works, particularly for small businesses.
In the U.S., about 60-90% of business sales involve seller financing. Before going through with the purchase, you need to thoroughly vet the business. Because owners rarely finance 100% of the purchase price, you might also need to find other sources of funding, such as a bank loan.
Once your business is up and running successfully, you might want to refinance so you are free and clear of the seller.
You can get up to $5,000,000 with an SBA loan, but you'll need a good credit score (680 or better), collateral, and at least a 10% down payment.
If you default, the owner might want to retain the power to take back the business within 60 days of you missing payment.
Helpful Resources:
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