The 3 Biggest Mistakes Business Owners Make When Selling a Company

by / ⠀Entrepreneurship / April 5, 2019

When you’re a business owner, the sale of your company can be one of the most bittersweet experiences of your professional career. But if you expect to enjoy more of the sweet and less of the bitter, it’s crucial to avoid committing certain all-too-common mistakes.

Selling your company can be a huge triumph — or a devastating disappointment if you make these three mistakes.

The Three Mistakes You Want to Avoid

Selling a business is a challenge. It doesn’t matter how big or small, successful or unsuccessful, your run has been; there are going to be difficulties at every step.

To begin with, the sale of a business puts stress on your employees. At some point, you have to let them know that the operation is up for sale or has been sold. This could result in any number of fallout situations, including commitment issues or a mass exodus.

To make it more personal, you might also suffer difficulties with motivation yourself. You know you’re on the way out, so you won’t have as much incentive to continue covering the everyday duties of the job that are essential for continued success.

As challenging as the sale of your business can be, however, it’s not something you have to regard with dread. If you take the trouble to do it right, you’ll not only survive to tell the tale, but triumph.

Clarity of purpose is key. Despite the enormous stress the sale can put upon you, it’s imperative to avoid making dumb mistakes that will come back to haunt you.

In particular, you’ll want to avoid:

1. An Improper Valuation

Typically, a company is a hard thing to value. It’s often necessary to bring in an experienced professional who can put a reasonably accurate price tag on the firm.

Should you choose to valuate your business carelessly — or ignore the advice of people in the know — you’ll risk taking an unpleasant hit.

As VR Business Brokers of Charlotte explains, “There are a lot of issues and missteps that can be corrected in the sale of a business, but valuation isn’t one of them. If you overvalue your business at the start, you’ll miss out on potential buyers. If you undervalue your business, you’ll leave money on the table.”

Selling a business isn’t like selling a house, where you assign a price to see if someone bites before you choose to adjust your asking price. An improper valuation of your firm can have significant and negative long-term consequences.

It’s wiser to work with a professional broker who can work through the valuation process with you.

2. A Proprietary Deal

One of the most difficult mistakes you should anticipate dodging is the “proprietary deal.” In this situation, an acquirer convinces a business owner to sell the business without putting it before a competitive marketplace.

When there’s no competitive market for the item, the owner usually ends up unloading the business for less than he or she would otherwise get (and with more punitive terms attached).

Proprietary deals often close without the business owner even knowing about them. Someone from the acquiring company approaches the owner, compliments him on the company, and suggests lunch.

Within a short time, the potential buyer and the business owner are discussing high-level financial details — a road that’s difficult to come back from. “As the parties in a proprietary deal get to know one another, the founder often shares information with the acquirer that puts them in a compromised negotiation position,” business growth expert John Warrillow explains.

The key to avoiding a quandary like this is to create a competitive marketplace from the start. Negotiate — if you can — with multiple potential acquirers before discussing any specifics. Assuming you have an attractive operation to sell, this approach could spark a bidding war, which would be ideal.

3. Poor Advisory Input

No matter how confident you are in your ability to sell your business at a fair price, don’t make the mistake of trying to handle the transaction on your own. Poor advisory input prior to the sale is the third biggest mistake owners make.

You need a team of people working on your behalf to guide you in organizing your business, selling it, and securing your financial future. In particular, make sure you have all the necessary legal safeguards in place to protect you against any repercussions or complications. The last thing you want is to be involved in cleaning up a mess that’s no longer yours.

Develop a Plan of Action

The sale of a company isn’t something anyone should casually stroll into. Doing it right requires months of preparation.

If you don’t approach the transaction with adequate research and a clear understanding of what your business is — and what sort of value it should command — you could be in for a painful experience. And it could drag on for months, adding to the headache.

Design a suitable plan of action, then begin moving into it. Don’t wait until it’s too late, or costly mistakes will follow.

About The Author

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Editor in Chief of Under30CEO. I have a passion for helping educate the next generation of leaders.

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