Common Seller Mistakes
- Not selling when times are good
Selling your business at the right time is one of THE most important things you can do. The best time to sell is when the economy is humming along; your particular industry is in demand and when your business is turning a healthy profit. In this kind of economic climate buyers are motivated to buy. If you know you are going to sell at some point, keep an eye on favorable economic conditions and pick the time wisely.
- Not pricing your company realistically
Understand that this is a free market economy and the business will only sell for what someone is willing to pay for it. There are many things that can influence a buyer which will make the company more attractive and thus sell for a higher price. This is where a good broker can make all the difference. You don’t just put the business up for sale…you market the company aggressively to be SOLD.
- Poor record keeping
A huge mistake many businesses make is little or no record keeping. This is a huge issue for many reasons. Buyers will want accounting records, monthly profit and loss statements, year-end balance sheets, tax returns and bank statements for at least 2 to 3 years. Countless deals struggle needlessly due to poor record keeping. If you have multiple businesses combined into one set of books, make sure you separate them out, completely!
- Poor reason for selling
Buyers can see through a poor reason to sell. If you are trying to get out of the business because the industry is changing or a major account was lost or a new competitor has emerged it will eventually come out and it very well could be after the deal is finalized which could possibly lead to a nasty lawsuit. You can sell a company in a declining market, as well as many other unattractive issues pending. Knowing how to handle these problems and issues is key, which is where a good business broker comes in. Brokers are excellent at selling the “concepts” of the business and not just focusing on the cold hard income statements.
- Poor lease
If your lease is not in order your deal is going to struggle. Make sure you have options on your lease and that the terms are going to continue to be similar to what you have had over the last 2 to 3 years. Landlords are king so if you made an enemy here you need to do some damage control now.
- Not showing a profit
The old saying “it’s not what you make, it’s what you keep” should be emblazoned on every business owner’s forehead. Every business owner wants to keep the expenses high to minimize the net and pay the least amount of taxes. Unfortunately, when it comes to selling a business or getting a loan, profit is necessary. A business can still be sold even if it is not showing a profit, but the brain damage is heavy. Time your sale right, show a profit and pay your taxes for the 2 or 3 years just prior to selling. You’ll be glad you did.
- Not having your business looking good
Many owners don’t understand that there is a lot of “curb appeal” in a business sale. Bathrooms in bad shape, carpets that needed replacing 3 years ago and walls that should have been repainted 5 years ago are NOT ways to maximize the sale of your business. Clean it up to cash it out!
- Wanting all cash
Almost every seller would love to sell his or her business for cash, but only about 5% ever do. Unless you have your business located in an area where someone is buying not only a very profitable business, but a “lifestyle” as well, it’s very difficult to get all cash from a buyer. You can “cash out”, but you will need a bank to cover whatever the buyer doesn’t put down initially. If your financials can’t support bank financing, you may need to partially finance the sale. You can expect a buyer to put 30% to 50% down and look for financing on the balance.
- Not understanding the tax implications
Taxes on a business sale are a serious issue. There are several ways (legally) around some of them. Having a good broker and CPA will minimize this issue and keep more in your pocket. You must be proactive and structure the deal prior to closing to take advantage of many of these loopholes. After the fact tax mitigation is almost futile which is why TIMING the sale is so important.
- Not Having The business Ready To Sell
If your business is not prepared to actually sell ie: financial documents ready, proper valuation and a willingness to work with possible buyers your exit will be painful and your buyers will be upset. Selling a business is a stressful thing in the first place and the individual (buyer or seller) who is best prepared will mitigate the stress and will have the advantage.