360-Degree Look at Small Business Valuation and Exit Strategy
A 360-Degree Strategy for Selling Your Business at Maximum Value
Sellers don’t get much experience selling their businesses. In most cases, they only sell a business once in their life, so sellers often make mistakes that they wouldn’t make a second time. Here are some of the most common ones you can avoid.
Business Seller Mistake #1: Not Being Prepared to Sell
Many owners focus on making the decision to sell without thinking about getting the company affairs in order and collecting everything buyers will want to see. They end up scrambling to get inventory and asset lists, tax returns, receivable information. They try to put legal, accounting, lease and other problems in order while in discussion with buyers. Make your preparation plan when you decide to sell.
Business Seller Mistake #2: Not Knowing the Right Selling Price
One of the most expensive mistakes comes from not knowing the reasonable value of your business. Set the price too low and you leave money on the table. Set it too high and you might reject the best offer you will get, or worse yet, you may not get offers from serious buyers who won’t waste their time if they think you are unrealistic. Get help from a valuation company or business broker.
Business Seller Mistake #3: Not Understanding the Whole Deal
An offer and negotiated agreement to sell includes a lot more than price. Even though the terms, conditions and down payment are typically more important than the actual price, many sellers reject offers based on the initial price. Be prepared to analyze offers carefully and counter with a package that meets your needs.
Business Seller Mistake #4: Wearing Rose Colored Glasses
Owners are proud of what they built and see high intrinsic value in their creation. Buyers typically don’t put much stock in intrinsic value. They are buying a cash flow that can pay the debt they will incur and make a good return on their investment. You need to be realistic or you might reject good offers or drive away potential buyers. Get some independent and honest advice.
Business Seller Mistake #5: Drowning In Potential Buyers
Very few “buyers” have any real potential to buy your business. Over 80% never buy any business. Very few who inquire will be financially capable and only a few will have skills or interests appropriate to run your business. Sellers have to wade through the sea of inquiries while maintaining confidentiality. Prepare a strong process for advertising and allow enough work time for confidential reviews of buyers or hire a professional.
Business Seller Mistake #6: Waiting for the Wrong Time to Sell
Many sellers don’t think about selling during good times when they can get a great price. Instead, they start thinking about selling when they are completely burned out, sick or when business is terrible. Then, they have to settle with the reduced price market will bear or a sale under duress. Make your exit strategy early and choose to sell when it is best for you.
Imagine the Benefits of a Good Business Selling Strategy
- Sell only when you’re fully prepared to sell.
- Know the right selling price
- Understand the whole deal
- Be realistic when evaluating an offer
- Know how to qualify potential buyers vs. wasting time with unqualified buyers
- Sell at a time when you can maximize the selling price
Isn’t this a much better scenario for selling your business and avoiding regrets?
- What is your business exit strategy?
- Do you know the value of your business? When was your business last valued?
- How are you setting your business up for a profitable sell that will maximize all your hard work and investment…even if you’re not planning to sell it in the near future?
The best time to ask these questions is long before you need to sell your business. I’d be happy to discuss these questions with you.