7 Mistakes To Avoid When Selling A Business
Mistake #1: Talking too much. Don’t talk about sales price. Focus on the “benefits” the transaction will provide to the buyer by asking questions about how the transaction will achieve their interests. Become inquisitive about the buyers’ position! The deeper your understanding of the buyer’s interests, the better positioned you will be to subtly demonstrate the transaction is a benefit for them.
Mistake #2: Making concessions to soon. If the buyer asks for a better price or terms, the typical response is, “What are you looking for?” Be careful! You may well be dealing with a strategic negotiator. Someone who has planned to create leverage they can use against you. Often, one concession leads to more concessions. A concession without something in return is not wise! Be prepared to respond to a request for a concession. Identify what you will ask for in return for a concession. Hold onto concessions for as long as you can! Don’t simply react.
Mistake #3: Believing that money is the only issue. The best negotiation discussion is about finding the best solution. Yes, people want to pay as little as possible. But if you make it all about money, both parties can “lose”. If buyers try to make the discussion only about money, you need to make it about how the transaction will benefit them.
Mistake #4: Setting an asking price. A high price will obviously repel buyers. A low price may cause a buyer to think there’s something wrong with the business. Know what the market is for similar businesses. A broker can provide a “Broker’s Price Opinion”. It should be a range because no two businesses are exactly alike. Valuation is part science and part “art”. Know how to defend the price you are asking. Ultimately, your business is worth only what a buyer will pay.
Mistake #5: Not Promoting Yourself. Promoting your business doesn’t stop when a broker brings you a potential buyer. It’s important that you continue to promote yourself and your business to the potential buyer. No one knows your business better than you. When promoting yourself and your business think about appearance, organization, and collegiality. First impressions are important in the sale of a business.
Mistake #6: Exaggeration. Present your business in the best way possible, but never exaggerate, misrepresent or hide important issues. Misrepresentations will “send up red flags” when discovered during due diligence. Talk to your broker about everything, including business forecasts, before passing the information on to the buyer. Get in front of any issues and explain them.
Mistake #7: Not preparing for due diligence. In due diligence, a buyer will try to understand everything about your company: financial, legal, operational, and human resources. Policies as well as actual operations. Anticipate what the buyer will ask. Ensure records are up-to-date and organized. Ask your broker for a due diligence checklist. Buyers evaluate a business based on historical data. However, be prepared to emphasize the business’s growth potential based on facts.