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  • Writer's pictureJason Huett

Top Mistakes to Avoid When Selling Your Business


Photo of business owner - Dane County WI

Selling your business is a significant decision — probably the most significant financial decision you will make in your lifetime. Like all major decisions, it comes with its share of challenges. Over the years, I've seen many business owners make easily avoidable mistakes that have cost them time, money, or even the sale itself. Here, I’ll share insights into these common blunders and how you can steer clear of them.


Failing to Properly Value the Business

Understanding Business Valuation (Mistakes to avoid)

Valuing your business correctly is the cornerstone of a successful sale. It's not just about how much your business is worth on paper; it's about understanding its value to potential buyers.


I've had the rare opportunity to operate on three sides of the business brokering equation — (1) as an owner who was selling, (2) as an entrepreneur who was acquiring, and (3) as an agent/broker helping others. A common thread that ran through all of my experiences was that business owners (myself included) tended to overvalue their business whereas buyers tended to undervalue businesses.


It's not that the spread between an owner's Asking Price and the actual Selling Price was fundamentally wrong, instead, it usually came down to the owner falling short in telling a compelling story and supporting that story with historic data and a solid roadmap of how new ownership could propel the business to new heights.


As a seller, it's important to apply a more empathetic mindset to the entire Sales process. You know how much work you put into your business — those 70 hour work weeks, the blood, sweat, and tears over the years. This can be emotionally charging, but buyers have difficulty justifying a higher price because of it. Instead, they use the best tools available to assess the opportunity which is typically weighted heavily towards historic financials.


For this reason, it's necessary to assess your business by applying objective, widely accepted valuation methods — asset-based, earning value, or market value to come up with a realistic number.


If the number is lower than you expected (and it usually is), the role of Marketing becomes the key to pushing the valuation up. Think of the role Marketing played in your business to bring in new customers — a similar process must be applied to selling your business, although the Target Audience will be much different.

Consequences of Incorrect Valuation

Incorrectly valuing your business can scare off potential buyers or leave money on the table. An overvalued business can linger unsold, becoming less attractive over time, while undervaluing can lead to a quick sale but at a significant financial loss.


Not Preparing Financial Records

Importance of Transparency

Buyers want to know exactly what they are getting into. Comprehensive, clear, and up-to-date financial records are a must. Think of it as going to a house viewing and finding everything in disarray. Would you be inclined to make an offer, or would you wonder what else is amiss?

Tips for Record Preparation

Start preparing your financial records early. Regular reviews and organized, accessible financial statements are your best friends here. This is not just about making a good impression but also about providing a clear picture of your business's health.

Overlooking the Importance of Business Appearance

First Impressions Matter

Never underestimate curb appeal. Just like selling a house, the first impression your business makes on potential buyers can make or break their interest. A tidy, well-maintained physical appearance and smooth operational processes show that the business is well managed.

Practical Steps for Improvement

Consider minor upgrades or a fresh coat of paint. Also, streamline internal processes. Efficiency is as crucial as aesthetics. Buyers will delve deep into how things are run; a well-oiled machine is always more appealing.

Ignoring Market Timing

Understanding Market Conditions

The best time to sell can depend on various factors including the economic climate and industry trends. I recall a client who decided to sell during a downturn when similar businesses were flooding the market. Waiting a year could have fetched a higher price.


Likewise, know that major events including political elections, changes in law, economic upturns and downturns, and even international issues will impact the market in many ways. Similar to timing of the stock market, it's usually best to avoid from timing the market - there are too many variables to consider.

Trying to Sell Without Professional Help

The Role of a Business Broker

Selling a business is complex and fraught with legal, financial, and marketing challenges. Professionals like business brokers can guide you through the maze. They are worth their weight in gold, often maximizing the sale price well beyond their fees.

Selecting the Right Help

Choose a broker with a track record in your industry and with sales of similar size. A good broker not only helps you sell but also advises on how to prepare your business for sale. If you can find a broker who has experience launching, operating, and exiting a business of their own, take note — they will understand your business better than a broker who doesn't have this experience.

Inadequate Marketing

Crafting an Effective Sales Strategy

The way you market your business for sale can dramatically affect the number and quality of potential buyers you attract. Utilizing a mix of online platforms, industry contacts, and professional networks can broaden your reach.

Utilizing Digital Platforms

List your business on popular online business-for-sale marketplaces; use social media to its fullest potential to create buzz around your sale. Now, if you're not wanting for the general public to see that you're selling, there are methods of conducting a sale in a more covert fashion.

Neglecting Legal and Tax Implications

Legal Considerations

It’s easy to get caught up in the numbers and negotiations and overlook the legal aspects. Ensure all agreements are vetted by a professional.

Tax Consequences

Consult a tax advisor to understand the tax implications of selling your business. Taxes can significantly affect your net proceeds from the sale.


Losing Site of the Big Picture

Jumping Over Dollars...

Traditional wisdom tells us to negotiate fiercely. However, a skilled negotitiator knows when to turn the heat up and when to soften their approach. If you've listed your $1 million business and have an offer $10,000 under your asking price, don't attempt to squeeze the buyer - you would be surprised how often they walk away. Instead, ask yourself this question, "Is haggling over that $10,000 worth giving up the entire deal?"


Thinking a Bidding War is the Ultimate Goal

Commercial buyers are much different than residential buyers. We've seen how crazy residential real estate can get. But, commercial buyers are different — they're significantly more sophisticated in their analysis of your financials as well as in their ability to negotiate. Long story short: if you get an offer for your full asking price, it's usually best to take it.


Conclusion

Selling your business is no small feat. Avoiding these common mistakes can help ensure that when you do decide to sell, you do it right, getting the best possible outcome with the least amount of stress. Always consider professional advice as an investment, not an expense.

Remember, it's not just about selling; it's about selling smart.


To your success,


Jason Huett Collaborative Commercial, LLC.

CEO | CMO

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