Selling a business is never easy and can often be overwhelming. Many business owners make mistakes during the process that can cost them time and money in the long run. Read on to learn about ten of the most common mistakes business owners make when selling their business, so you can avoid making them yourself.
1. Not Having Financial Records Ready for Review
Buyers will want to review financial records closely before making an offer, so it’s important to have these documents ready. This includes income statements, balance sheets, accounts receivable/payable reports, inventory records, tax returns, and profit & loss statements. It’s also a good idea to prepare a confidential information memorandum that outlines key financial information in an organized manner.
2. Underestimating How Long It Will Take to Sell
The amount of time it takes to sell a business varies greatly depending on several factors including industry, location, and size of the company. On average though, it generally takes around nine months from start to finish for a successful sale. Don’t make the mistake of underestimating how long this process will take; plan accordingly.
3. Setting an Unrealistic Price Target
One of the most common mistakes business owners make when selling is setting an overly ambitious price target for the sale of their business. While you want your asking price to reflect the value of your company, it’s important not to overprice or you risk scaring away potential buyers or selling far below what you could have gotten if you had priced correctly from the start.
4. Failing to Negotiate
Once an offer has been made on your business there are typically still some negotiations involved before a deal is finalized between buyer and seller. Many sellers fail to negotiate effectively during this period because they may not understand what they should be aiming for or they don’t feel comfortable countering offers they receive from buyers.
5. Using Outdated Technology
Outdated technology can seriously slow down or even derail potential sales as buyers don’t want to invest in obsolete technology and systems that need updating as soon as possible after purchase is complete and taking possession of a company with outdated tech could send up red flags for potential buyers who may think there could be other issues with the company as well beyond just its technology infrastructure.
6. Not Understanding Tax Implications
Taxes are one area where many sellers make costly mistakes when selling their businesses due to a lack of knowledge regarding tax laws applicable to their situation. A professional accountant should always be consulted prior to finalizing any sale agreement so all necessary filings are completed correctly and no taxes are overlooked or underpaid which could lead to costly penalties down the road.
7. Failing to Properly Prepare Your Staff
Your staff can be one of your biggest assets when selling your business, but without proper preparation, they may end up disrupting negotiations by voicing concerns or being unaware of what is going on throughout the sales process. Make sure everyone involved with your firm knows ahead of time what is happening, why it is happening, and how they fit into the picture moving forward if negotiations result in a successful sale.
8. Overestimating the Value of Goodwill
Goodwill refers to intangible aspects such as customer relationships, reputation, brand recognition, etc. which get assigned a monetary value for purposes of calculating total value at the time of sale; however, goodwill does not always carry over from the previous owner(s) since many times new ownership means changes in product offerings or management style which directly impacts customer loyalty. As such, overestimating goodwill can lead sellers into trouble by assigning too high a dollar figure against intangible assets which may not remain constant after the transfer occurs.
9. Failing to Time the Sale Properly
Timing affects both pricing and buyer interest significantly when it comes time for sale; too early or too late could mean missing out on prime opportunities either due to higher demand (earlier) or lower market readiness (later) so getting timing right requires research into current trends within the industry along with projections about future activity levels versus the current state of affairs before making decisions regarding when best move ahead with sales efforts.
10. Not Hiring a Professional Business Broker
Last but certainly not least, many sellers fail to utilize services provided by experienced business brokers who specialize in helping businesses transition through stages such as buying, selling, or mergers and acquisitions. These brokers provide invaluable assistance by providing access to resources ranging from legal advice regarding contracts and agreements all way through marketing assistance and data analysis. These are needed during the negotiation phase while also ensuring compliance standards are met throughout the entire process which reduces the risk associated with the transfer and helps both buyer and seller get the best possible outcome from the transaction at hand.
Selling a business is an incredibly complex endeavor that requires careful planning and attention to detail if done properly; however, many sellers tend to overlook certain aspects that can lead to costly errors during the negotiation phase thereby impacting the overall success rate drastically. Hiring experienced professionals like those found at Arizona Business Brokers Association can help ensure everything runs smoothly by providing guidance every step way while completing necessary paperwork quickly and efficiently in order to minimize delays and close deals faster.