7 Common Errors When Selling a Business
When selling a business, entrepreneurs often underestimate the amount of preparation needed for a satisfactory outcome and overestimate the value of the entity. Here are 7 errors to avoid when selling your business:
- Old or incomplete financial records: You will need complete tax records and P&L’s for several years and current interim P&L’s. Without these, you will have a difficult time defending your asking price.
- Relying on Tribal Knowledge: Information about the business that is in the owner’s, general manager’s or foreman’s head is Tribal Knowledge. All processes used in the operation must be described in an Operations Manual. By detailing this information in a written form it becomes Corporate Knowledge and raises the value of the enterprise.
- Top Dollar Dreams: Overvaluing the company is a sure-fire road to “No Sale”. A reasonable market price (obtained from knowledgeable outside valuation sources) will counter the all-too-common reduced-price offer.
- Sloppy Appearance: Check your floors, desks, shelves, storage racks, warehouse, production floor, parking lot, landscaping, windows, signage, restroom. First impressions are lasting impressions. Attention to maintenance shows that you care about the company which translates into greater value.
- Take the Money and Run: Requiring all cash up-front and little transition time says “I’m getting out before this place implodes.” A seller who offers a generous period of transition and some carry-back financing demonstrates his/her trust in both the buyer and the business and helps to guarantee the future success of the business.
- Treasure Hunt for Information: When a buyer has to ask for basic company data/documents and then is forced to wait for this information to be supplied by an overworked owner, the buyer typically walks. Every valuable business needs to have all key business information gathered into a Memorandum: without this central information source, the acquisition investigation by a credible buyer devolves into a treasure hunt.
- Trying to Hide Red Flag Issues: Every company has historical issues—a legal problem, firing, poor performance, tax question, angry client or vendor. These problems (and their resolutions) must be named up-front in an acquisition process in order to establish credibility with the buyer. If not, they will be uncovered during Due Diligence and can shatter a deal.
Your business is too valuable to try and sell without professional help. Call us and we will help you formulate your plan