Most entrepreneurs eventually think about selling their businesses, whether as a prelude to retirement or to pursue other activities. In doing so, they often underestimate the effort required for a satisfactory outcome and overestimate the value.
If you’re contemplating selling your business, here are six common mistakes to avoid.
1. Overestimating the value of your business
Your price should be based on the fair market value of the business in its current form. Buyers won’t care about the work you’ve put into building your business or your vision for its future.
2. Failing to account for the nature and make-up of your business
The values of most businesses come from a mixture of variables. If your business includes significant equipment, real estate, intellectual property, or other assets, establish their values separately before factoring them into the overall price.
If you’re selling a service or professional firm, its value may depend on the experience and skills of your managers and employees. In this case, the price may vary according to the expected retention of key individuals.
3. Failing to base your sale price upon independent appraisals
Even if you think you know the value of your business, you should obtain two or more outside appraisals from professionals familiar with your industry. If the appraisals conflict with your opinion, they’ll provide a much-needed reality check. If they confirm your opinion, they’ll become a useful sales tool.
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4. Not hiring a professional business broker to handle the sale
Usually, owners are too personally invested – or eager to sell – to effectively negotiate sales of their businesses. A broker familiar with your type of business will know what issues are important to buyers. He/she will know what characteristics to emphasize or de-emphasize, without becoming emotionally involved.
5. Neglecting to work with the buyer to ensure a smooth transition
People don’t like being thrust into unfamiliar circumstances without preparation. Notify your managers, employees, and customers in advance. Do all you can to calm their concerns. This will serve your own best interests, and it’s the honorable thing to do.
If any parties are discontent, it could result in conflicts, reduced revenue for the buyer, withheld sale payments, and litigation.
6. Being unwilling to help finance the sale
If you’re unwilling to take back a note, your sale price is limited to the buyer’s cash and ability to obtain outside financing. At best this could limit the number of potential buyers. At worst it could limit your sale proceeds. If you finance too much of the sale price, you’ll increase the risk of default.
Selling your business is too important to attempt without professional help. If you’re considering selling, make sure you put together a solid team to formulate your plan.
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