Business advisor , Archive » Selling a Business – A Business Broker Discusses 10 Common Mistakes Sellers Make
Posted August 1st, 2010 by start and filed in business advisor articles
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Selling a business is one of the most important events that occur in a business owner’s life. In many cases the business represents the greater part of a business owner’s net worth. As a business broker in New Jersey I meet with many business owners that have tried to sell their businesses on their own. In other situations owners call me prior to selling because they feel they need an experienced business broker. In either case I often see many mistakes that should be corrected before going to market. The following are 10 common mistakes business owners make when selling a business.
* Not planning for a post-sale future. I always suggest to my clients that they speak to their financial advisors prior to selling their business. They need to understand how much they will walk away with after taxes and is it enough to retire or support their lifestyle.
* Not meeting with a business broker. Working with a business broker is not for everyone, but it is a great way to get information on how to sell your business. Most business brokers can provide you with industry specific information including valuation guidelines. It also doesn’t cost you anything.
* Realistic Valuation. Too many business owners either over valuate or under valuate their companies. Under valuating will leave money on the table while over valuating will reduce the number of buyers looking at your business.
* Financial Record Keeping. Many business owners have poor financial records which will impact selling their business. Most serious buyers want to look at thorough financial records of a business. These financials will be needed to justify the agreed upon price.
* Confidentiality. The majority of business owners who sell their businesses do not want employees, customers, vendors and competition to know they are up for sale. However, many do not use confidentiality agreements and do not take precautions until it is too late.
* Real Estate leases. One of the biggest reasons deals break down is due to problems with the real estate lease. Some sellers assume that a buyer will buy a business with 2 years left on their lease. Other sellers assume their landlord will write a new lease at a reasonable rate without checking with their landlord.
* Potential. So many business owners think they can convince a buyer to pay more for potential. I hear all the time from sellers that if a buyer would make a couple of changes sales would explode. Buyers will pay based on the historical performance of a business and they will not pay you for what they can do to your business.
* Planning for a sale with key employees. In many small businesses there are a few key employees that are necessary for a smooth transition. Because of confidentiality some sellers will not discuss a sale with these employees. In many cases this can turn into a major problem when it is time to close on the sale.
* Hiding information. Some sellers believe that they can hide some negative information on their business from a buyer. As a business broker, I always inform my clients that there are no secrets that a buyer will not uncover. Due to the enormous amount of information available on the internet buyers are very sophisticated and will find out everything during due diligence. Why not disclose this information up front so you don’t have a let down at the end.
* Seller financing. Many business owners do not want to consider seller financing and in many cases this could be a mistake. I covered this in depth in a previous article. By offering seller financing you will increase the buyer pool which will help increase the selling price.
This list is not exhaustive, but it covers many of the common mistakes owners make when selling their businesses. An experienced business broker should help you avoid these errors.
Howard Greenberg works as a business broker in New Jersey and New York. He is a principal at AJR Business Advisors located in Rochelle Park, New Jersey. Howard represents owners of privately held businesses in the sale of their companies. Prior to starting AJR business Advisors, Howard was one of the founders of Axiom Design Systems which was one of the leading graphic communications firms in New York City. Howard has also owned two franchise businesses. Business owners interested in selling their businesses in New Jersey and New York can reach Howard Greenberg at http://www.ajrba.com/.
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