12 Fatal Mistakes to Avoid When Selling Your Business
Why Choosing Good Counsel to Help with Exit Planning Can Be the Most Important Decision a Business Owner Makes
Venture Resources believes many business owners donâ€™t fully appreciate the complexities and factors that are present in the deal structuring and business selling process, including understanding how to project the companyâ€™s future, applying alternate deal structures, and maximizing current business potential. Here are some tips.
These are guidelines you will need to know when selling your business to achieve a faster transaction and the best possible price.
Lack of deal structure expertise
When the seller has limited knowledge about the available alternatives for structuring the deal, he is at a definite disadvantage! And probably a costly one. Items such as leverage buy-outs, leases, royalties, earn-outs, consulting agreements, non-compete contracts can add immeasurable value and security to both buyer and seller alike.
Failure to adjust the net owner benefit
If you are to determine a proper value, the balance sheet and income statements must be recast. Items such as the owner’s salary, depreciation, interest and fringe benefits may be added or subtracted depending on the circumstances. The adjusted income statement will reflect the actual owner benefit in order to help determine the market value.
Failure to maintain confidentiality
Confidentiality is vital to the selling of a business. If employees know that you are selling and changes are coming, they may seek other opportunities. Competitors may use this information as a selling tool. Vendors may not continue to extend favorable terms. Profitability and market value may be reduced.
Failure to secure qualified buyers
Knowing how to qualify a buyer is critical. This saves you time and money. It can eliminate hundreds of wasted hours and misdirected efforts.
Failure to continue to run your business
It is important to maintain your business at peak operating capacity. The performance and productivity of your business is what you are really selling. The time taken from your business to sell it will have a toll on the business and, as a direct result, lower its market value.
Failure to properly adjust for economic conditions and owner’s ability
Generally speaking, the higher the skill level required to operate the business, the more difficult it will be to sell it. The value tends to increase when the owner can be replaced easily. The value also may increase when an industry is in a growth stage. For many industries, there are specific valuation methods that are highly subject to the owner’s duties in the company as well as outside economic conditions.
Failure to provide credible information
A potential buyer will want information about your customer base, competition, financial history, and industry characteristics, such as size, growth potential and areas of opportunity. This information must be provided in a salable format and in a way to ensure your confidentiality.
Poor negotiating techniques
In many deals, poor negotiating techniques can cost the seller considerably in terms of selling price, terms and other opportunities. Many times a deal will fail to close because of poor negotiation or communication between parties.
Failure to place the proper value on your business
A business has value to a buyer because of its anticipated earnings from its established resources and a demonstrated successful track record. Proper evaluation is crucial, enhancing the chances of selling your business.
Failure to consider alternative investments
All buyers have alternative investment options. To make your business attractive, you must show a return on investment greater than stocks, bonds, real estate or other similar business opportunities. You should be prepared to offer seller financing.
Failure to prepare for proper due diligence
Due diligence issues are very important to the selling process. These issues can have a major impact on the closing of a business sale. It is imperative to be prepared and organized. You must be able to defend and substantiate representations made during the selling process.
Failure to seek professional assistance and consultation
There are legal, financial, Marketing, and other vital considerations that must be addressed in the selling process. Many decisions in the selling process should not be made without the advice of the right professionals. A wrong decision could lead to a fatal mistake!
These are just 12 areas of concern, according to Venture Resources. There are many more just as important, depending on your particular situation. Read the whole piece here.