If you’re contemplating a business sale, odds are good you’ve never done this before—and that even if you have, it’s only been once or twice. Selling a business is a skill that demands practice, which many sellers lack. To get the most out of the sale, avoid these rookie mistakes:
Waiting for a Premium Price That Never Comes It usually takes 1 t0 4 years to sell a small business, so a long-term plan and exit strategy are key. You’ll also need a credible valuation. If your sale expectations are too high, you might wait forever for the right buyer to come along.
Choosing the Wrong Intermediary An M&A advisory firm or business broker can expedite the sale and increase value. But don’t hire the first one you meet. Not all intermediaries are the same. You need to call references, ask questions about past experience, and assess whether this is someone with whom you feel comfortable working.
Relying Solely on Your Broker The right broker can greatly reduce your workload, but they can’t do it all. You know your business best. So be proactive in the process, and ask your advisory team what specific tasks you can undertake to improve the odds of a successful sale.
Excessive Confidence Many owners are deeply emotionally invested in their businesses. So they assume a buyer will be, too. Overconfidence can kill the deal before it even gets off the ground. You must assess your business through the eyes of a critical and skeptical buyer.
Going it Alone You might be a great salesperson, but you’re no match for the experienced team the buyer will have on their side of the table. Level the negotiation playing field by hiring an expert to support you through the dealmaking process.
Not Vetting Buyers Not all buyers are equally qualified. Some even masquerade as buyers so they can learn about a competitor and get a leg up. You must pre-qualify buyers, and reveal sensitive data about the business only once you are sufficiently confident in the buyer.
Unreasonable Pricing Price is the single most important factor in determining whether a company will successfully sale. Most owners price the business too high, deterring otherwise interested buyers. Some, however, under-price the business, causing buyers to wonder if there’s something secretly wrong with the company.
Leaking Information Every buyer needs to sign an NDA. If they don’t, word will soon leak that your business is up for sale. That can trigger panic, causing suppliers, clients, and other stakeholders to flee. It may also alert competitors to your vulnerability, eroding value.
Not Preparing for the Transition Even when a sale successfully closes, it may not succeed if both parties do not have a clear transition plan in place. Address cultural mismatches early, and establish a dedicated transition team to shepherd the deal to successful completion.
Not Increasing Value Buyers are risk-averse. Recent sales growth, a strong and stable customer base, and similar factors can add value. This makes your business an attractive target when compared to similar offerings. Spend some time increasing value by boosting marketing efforts and drumming up sales.
Being Unable to Defend Valuation It’s not enough to just slap a price tag on your business. You must be able to document your claims, and show why your business is a worthy investment. Don’t get defensive. Sell your business with a compelling story and ample documentation.
Not Understanding Buyers As you prepare for a sale, it’s easy to focus on yourself, your business, your future. That’s a mistake. Focus instead on buyer psychology. Why might a buyer be interested in your company? What is a buyer looking for? How will the ideal buyer feel about your business? Buyers want a sound, low-risk investment. You can earn more on the transaction by offering them what they want.