Mistakes to Avoid When Selling a Business

Here are some strategies that can help you avoid common pitfalls

Selling your business is a major undertaking. This is why it’s so important to get the experienced support of sell-side professionals. Without that insight, you may make costly mistakes that destroy the deal before it even gets off of the ground. Here are some strategies that can help you avoid common pitfalls, so that your sale can be as successful as possible. 

Know Your Company’s Worth 

While most owners have a clear growth plan, most do not have an exit plan. And at least 65% don’t even know how much their business is worth. This is a recipe for disaster. If you go into the sale with unreasonable valuation expectations, you’ll be disappointed, and you may tank the sale. Moreover, if you don’t know your business’s value, then you also cannot identify what drives that value, so you can increase value prior to the sale. 

There is no single ratio or valuation metric that works for all companies. Your company is unique, and it’s of paramount importance to use a valuation metric that works for your business. Work with a valuation expert to ensure you get a reliable figure. 

Get Your Paperwork in Order

A business without the proper paperwork is not sellable. A buyer wants to see documentation for every claim you make, especially financial claims. Ensure a valuation is included in your paperwork, but don’t stop there. Some other documents the buyer will likely require include: 

  • three years’ federal tax returns
  • three years’ profit and loss statements, including balance sheets and interim P&L statements 
  • lease or property tax bill for the property 
  • inventory lists 
  • customer list or details about customer concentration 
  • any other information a buyer will need to verify your claims about your company 

Embrace a Competitive Bidding Process

Selling a company is a complex undertaking, which is why owners typically prefer to deal with only one buyer, even if several are available. Doing so can lower the ultimate sale value of your company because the bidding process is not competitive and you’re stuck with one buyer no matter what. The added complexity is worth it, and if you partner with a professional sell-side team, working with multiple buyers shouldn’t add too much more of a hassle. 

Before you begin serious negotiations, you must carefully vet each buyer to ensure they are serious about your company and a good match for the business. A professional intermediary is very helpful here, too, since they know how to distinguish window shoppers from the real thing. Ask your advisor if they will vet buyers before presenting them for consideration, and what specific strategies they use as part of the vetting process.

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