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Avoid These Mistakes When Selling Your Small Business

In every business transfer, there are opportunities for missteps. Some can turn away buyers. Others create delays. And still others cause sellers to realize avoidable costs. Most often, mistakes with selling a business include six critical points:

1

Underestimating the importance of planning ahead.

How to avoid this mistake: Plan to spend at least two years cleaning up your financials, implementing better operating systems, incorporating smart improvements, and minimizing the role that you play in daily operations. This prework can help you can market a business that operates smoothly, efficiently, and with minimal owner involvement. These three factors are a must for achieving a high valuation for your business and attracting a wide pool of potential buyers.

2

Telling your team too early in the process.

How to avoid this mistake: Think carefully about when and how you’ll tell your employees and vendors about your plans to sell the business. This is important for three reasons:

 

  1. Your news may cause feelings of fear and uncertainty in your team, which could result in high levels of turnover. The loss of critical employees, including managers and team members who have specialized knowledge, could turn away prospective buyers.
  2. Your news can also create uncertainty for your vendors. Some may respond with stricter terms that help them forecast their own cash flows. Unfavorable changes in terms may reduce the attractiveness of your business to buyers.
  3. By sharing your plans too early, you risk allowing your news to spread beyond your control. If competitors pick up on your news, they’ll likely use it to their advantage. Most will try to strengthen and increase their market share, perhaps by offering incentives to your current base of customers. Strengthening competition won’t be viewed favorably by buyers, who may decline to make an offer or offer you a significantly lower price for your business.

3

Starting the process without a solid team of advisors in place.

How to avoid this mistake: Quite simply, you need to build an advisory team that can help you through the exit process. Your team may include:

 

  • An accountant who can help you prepare your financials for evaluation and review
  • A valuation specialist who can help you to set the right price for your business and its assets
  • An attorney who can help you prepare nondisclosure agreements, review offers, and work through the legal processes you’ll need to follow to transfer your business to a new owner
  • A business broker with a proven record of success who can help you market your business and navigate the nuances of your sale
    Alternative: You can study what it means to broker your own deal and save on the costs of selling your business.
  • A wealth advisor who can help you manage the proceeds of your sale

 

Need help finding your team? Use the search tool at the bottom of the screen to find experts with the skill and know-how to help you sell your business.

4

Selling at the wrong time.

How to avoid this mistake: Plan to sell your business while it’s profitable and in a pattern of continued growth. Growing revenues, cash flows, and profitability numbers will be far more attractive to potential buyers than stagnating or diminishing numbers and may result in a higher sale price for your business.

5

Setting the wrong price for your business.

How to avoid this mistake: Find an expert who will help you assess your business, compare it to others on the market, and arrive at a valuation that’s both fair to you and attractive for potential buyers.

 

It’s critical that you avoid setting the price too high, which may turn away your pool of interested buyers. But you should also avoid setting it so low that you either leave a significant amount of money on the table or create feelings of suspicion that the business has deep, underlying problems.

 

Start your search for a valuation specialist here:

6

Settling on the wrong buyer.

How to avoid this mistake: Interview your pool of potential buyers and ensure that the one you choose has the experience and capacity to maintain the success of your business. Ask about their abilities to lead, market, oversee complexity, connect with an established customer base, and adapt readily to changing market conditions before making a selection.

 

Ready to proceed with your sale? We can help. Log into your owner’s portal for free checklists, articles, and advice for selling your business.

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