While starting and building a successful business is immensely challenging, selling one can be almost as difficult. Many business owners are surprised by just how time consuming and laborious the sales process is. Fortunately, tons of time and effort can be saved simply by avoiding these four common pitfalls:
1. Insufficient Preparation
You certainly wouldn't plant a “For Sale” sign in your yard without preparing your home for the market, yet many people basically do just this by not taking the proper steps to prep their business before attempting to sell. On average, it takes two to four years to sell a company, so this isn't something you should do on the fly.
Just gathering all of the necessary documentation—financials, business history, profit forecasts—is a massive undertaking and must be done before you can even set your price. Preparation is also key to closing a sale. If buyers see you've done a thorough job preparing your sales portfolio, this should convince them the business has been run in an equally efficient manner.
We can be an invaluable asset in helping prepare your business for sale. We'll guide you through the documentation process, ensuring you have all of the necessary records needed to wow potential buyers.
2. Improper Valuation & Pricing
Pricing a business can be sensitive. The business is your baby, and you want to see a healthy return on the time, energy, and money you've put into building it. However, emotion has no bearing on a business's value. Only quantifiable criteria like cash flow, current market prices, and growth forecasts should influence pricing. For optimal valuation, get the objective opinion of a third-party appraiser.
And don't forget to take into account the total cost of the sale. If you set the price without considering the amount of taxes and fees that will be deducted, you could end up with much less money than expected.
We'll help you accurately assess financials and tax obligations for the sale, while also providing trusted advice on any legal ramifications that might affect the process.
3. Selling to the wrong person
It might be tempting to sell to someone you know—a friend, relative, or colleague—but camaraderie has no part in a sale either. To choose the right person, pre-qualify all potential buyers and agree to share business records with them only if they sign a confidentiality agreement. This will ensure anyone you deal with is actually serious about buying.
Evaluate several qualified buyers; don't just sell to the first person who comes knocking. Having a pool of buyers not only provides backup if a sale falls through, it also offers leverage when negotiating terms.
We can help you evaluate qualified buyers as well as draft legal documents like confidentiality agreements and other contracts.
4. Trying to do everything yourself
You're an expert at running a business, but that doesn't mean you're competent at selling one. Besides, selling can be lengthy and labor-intensive, so it's doubtful you'll have time to manage the sale and run the company at the same time. Given this, it's best to hire a business broker to facilitate the process.
A veteran broker can handle vital tasks like overseeing preparation, taking care of buyer pre-qualification, showing the business, and negotiating terms. While brokers cost more, they often sell more quickly and boost the asking price, making them well worth the investment. It's also advisable to seek the counsel of other professionals like accountants, financiers, and bankers. In fact, putting together a seasoned team of advisors is one of the first things to do once you've decided to sell.
We can also assist with numerous financial and tax-related matters, putting you well ahead of the curve before you even get started. Allow us to help you get the money you deserve for your most valuable asset and ensure the sales process goes as smoothly as possible.
We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule. Or, schedule online.