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Avoid these 8 mistakes when selling a business

On Behalf of | Dec 9, 2020 | Business law

Starting a business and building it up into something valuable can be very rewarding. But at some point, it may be time to move on to other ventures or retire. Perhaps you are an entrepreneur at heart and find the building part business’s lifespan more enjoyable than running it.

According to experts, 80% of all businesses for sale do not sell; however, the good news is that you built something of value that people want to buy. Every business sale is different, but there are certain concerns and strategies that those planning to sell should consider. These include:

  1. Waiting too long: The time to sell a business is when the growth trajectory is still going up.
  2. Expecting too much: The seller tends to (understandably) think that the value is unrealistically high and may need to recognize the market value.
  3. Focusing on the sale: Owners cannot get distracted by the details of selling a business and let things fall through the cracks. They need that desirable upward trajectory until they close the deal, or the buyer (or the bank) may get cold feet.
  4. Overestimating the future potential: Selling a business takes time, so the buyer and their financier will see whether projected earning potentials are met. Overestimating them can put the deal in jeopardy.
  5. Failing to plan ahead: Think about how you want to structure the deal ahead of time. Most buyers only want to buy assets. It is often preferred for the seller to sell the equity interest, in the business entity. Talk to qualified legal counsel and tax advisors before you accept any offers.
  6. Giving up too soon: Patience is a virtue when selling a business. It is often a long and exhausting process. There will be hurdles foreseen and unforeseen that make it so.
  7. Not preparing staff: Good experienced employees add value to a business. Assure them that the move is a good one for them, and they need to hear from you instead of whispered rumors of a potential sale.
  8. Tipping your hand: It is a mistake to talk about closing the deal on a deadline so you can move on to other things. Conveying urgency to close the deal weakens the hand of the seller.

Outside help often useful

Just as selling a house involves a real estate agent and perhaps a banker, selling a business often requires a broker, valuation experts, lawyers and other professionals. These qualified individuals do this for a living and can provide invaluable insight when issues arise, or the buyer/financier and seller do not see eye-to-eye.