Three Major Pitfalls in Selling a Business

Pitfall #1—Not Allowing Enough Time

Many sellers delay planning for the sale of their business until close to the time they want to sell. Given the complexities involved and the potential opportunity this represents, the time to start planning is actually well in advance of the intended sale time. Advance planning - up to two years in advance is usually the minimum - is crucial to getting the best possible price and terms for the business.

During that time business operations can be tweaked to build up value and financial results can be enhanced in order to be more attractive and to present the business in its best light. These steps improve the business’ value and will avoid any unhappy discoveries by the seller that their business is not worth what they want to get out of the sale.

Pitfall #2—Failing to Understand the Sales Process

Most business owners only experience the selling process once, so it is understandable that they don’t have knowledge of the number of steps involved. Not taking professional advice on how to deal with the issues at each stage will put the owner at a severe disadvantage in negotiations and reduces the likelihood of ending up with the best deal possible.

Professionals contribute to a wide variety of tasks that, when carried out successfully, will maximize the return on the sale: deciding where to market the business, how to promote its potential; what price to ask; screening buyers; ensuring discretion; developing a financing arrangement for the purchase; structuring the deal to minimize tax liability and so on. Hiring professionals for these specialty tasks will also enable the business owner to continue running the business until its sale.

Pitfall # 3—Letting emotions rule over rationality

By the time most owners come to sell, their business has been an intimate partner in their life for many years. Selling can be an emotionally wrenching experience and that emotion can spill over into irrational decision making in the sales process and may potentially damage relationships with prospective buyers, the broker and other people on the selling team for whom the process is objective and rational.

Price is one issue sellers commonly have difficulty with. They are inclined to associate value with the years they put into the business, the investment they made in plant and equipment, and how much it would cost to replace it all. There is a difference between the emotional and the financial value of a business.

There are many other discussions where emotional issues can intrude to sour relationships and destroy any chance of a deal: the implied criticism when the prospect suggests management changes they might make; resentment at cocksure young prospects who, without any experience of the market, can explain how sales could be improved. A broker should play a leading role in these discussions to shelter the owner from situations that could be distressing and lead to unfortunate comments.

The successful sale of a business requires a carefully planned and methodically structured process in which each step is done right. While owners are experts at successfully running their own organization, few are equipped to navigate this complex process and, therefore, they are at a distinct disadvantage. The use of professional advisors will provide the expertise, support and representation required to sell a business for the best price.

Alliant Advisors uses a team approach to “Exit Planning,” which is the process of transferring a business to the next generation or ownership group. Wade Runge, CPA, CVA, with his combination of business valuation expertise and over 20 years experience counseling small business owners, heads a quality team of caring professionals dedicated to helping business owners navigate their way through the exit of their business. Whether your exit is 5 years away or more, proper planning is essential to “getting it right.” Give Wade a call – he would be happy to sit down with you for a free 30 minute consultation, to discuss the process and your needs and goals.