Building a business doesn’t come with an instruction manual – and neither does selling one. This is especially true for owners of small enterprises, who don’t have an army of in-house advisors to rely upon when it’s time to initiate and execute a sale.
In order to get the best price possible for your business – and exit on your preferred terms – it’s vitally important to sidestep the most common mistakes that affect small enterprise owners.
With that in mind, let’s take a closer look at a few of these errors and examine what business owners need to know in order to avoid them.
1. Waiting Too Long to Sell
It’s natural for business owners to have some reluctance about initiating the sales process. After all, if you’ve built a successful business, or taken an existing business to greater heights, it’s not easy to walk away.
However, when it’s time to consider selling, reason and rationality should prevail over sentiment. If an excellent sales opportunity develops and you decide to wait, you may eventually regret this decision. Increased competition may enter the market, or your product or service may decline in value due to larger economic conditions. When thinking about a sale, it’s important to consider any changes occurring within the economy and your industry, as well as how those changes could affect your sale prospects.
2. Not Planning Ahead
Additionally, many small business owners are surprised by the length of the typical sales process. It takes, on average, one to two years to sell a small business. If you fail to prepare well in advance, your window of opportunity can close before you have time to conclude a sale.
So how does a small business owner plan ahead? By keeping updated records, a detailed history of the business, and a sales portfolio prepared and ready to go. If a prospective buyer enters the picture and expresses interest, you’ll have all the necessary documents to begin engaging that purchaser.
3. Not Marketing Your Business Effectively
Hiring a broker is perhaps the most consequential decision business owners make during the sales process. The right broker will assist with valuing your business correctly and help to ensure a timely sale at an attractive price. A good business broker will promote your company effectively, generating high-quality leads in the process. The wrong broker, on the other hand, can misprice your company, costing you money or extending the sales process by months or years.
It’s also important to remember that a broker isn’t working in a vacuum. Ultimately, nobody knows a business better than its owner. This means that a business owner is often his or her own best promoter and advocate. Small business owners should remember this and use it to their advantage, working closely with brokers to promote a company in the best possible light to generate leads.
4. Failing to Value Your Business Correctly
Setting an appropriate value is often tricky for small business owners. Some make the mistake of settling on a price before they’ve done sufficient research, selling themselves short in the process. For other business owners, “sell my business fast” is top of mind, which leads them to sell too quickly and ultimately settle for less.
In order to maximize your profits while still encouraging a timely sale, it’s advisable to work with professionals to arrive at an informed valuation. Small business owners can choose to confer with their accountants, attorneys, and other advisors. However, a qualified business broker is in the best position to value a business correctly.
Brokers have the necessary experience, and familiarity of local market dynamics, to identify valuation “sweet spots” – a price attractive enough to enable a timely sale yet high enough to avoid leaving money on the table.
5. Selling Your Business to the Wrong Person or Company
A successful business sale requires more than a good valuation or the right sales partner – you also need the right buyer. If a buyer isn’t pre-qualified, there is a good chance that they are nibbling.
Additionally, drawing prospects into the qualification process has benefits: early pre-qualification can help ensure that sensitive information about your business remains private (through the signing of non-disclosure agreements), and allows owners to dismiss candidates who aren’t financially qualified to move forward.
Speaking of financing, business owners are likely to encounter a variety of purchase proposals. Some may be cash only, others may ask for seller financing, and a few may be fully bank financed. This is obviously a major consideration for sellers. If business owners are asked to provide full or partial financing – or asked to stay on post-sale in order to help manage the transition – it’s absolutely imperative to fully vet the buyer.
Selling a small business requires smart planning – and that means avoiding common sales traps like those listed above. If you’re currently selling a small business – or considering starting that process – we encourage you to meet with a qualified business broker.
VR New Haven is a top mergers and acquisitions company in CT. Whether you are selling a business or looking for companies for sale in CT, our qualified professionals will help you through every step of the process. Contact us today for more information on how to sell a small business or to set up a meeting.