6 Mistakes People Make When Selling Their Business
| November 2022
When it comes to selling your business, it can feel a lot like sending your child off to college. Deep emotions are involved with even the idea of such a change. The difference, of course, is when you're selling a company, you are looking to create the best value for your business. Creating value means checking your emotions at the door.
Selling a business is no walk in the park – it’s a complex and time-consuming undertaking. Our team of business brokerage experts has decades of experience, and we frequently see business owners repeating similar mistakes. Don't fall into the same trap.
Below are six of the most common mistakes we see and what we recommend to avoid making them.
Mistake One: Not Getting Started Soon Enough
“The one thing that I would tell a business owner is to start the conversation early,” says Aaron Linnebach, Raincatcher Managing Director - West. “If you can find your advisory team before you’re ready to sell, you can start discussing the things you need to do for your business so you’re prepared when it’s time to sell.”
“If you wait until you’re psychologically or emotionally ready to sell, then you may have waited too long because you may already be disenfranchised with your business,” said Aaron as a guest on the Business Leaders Podcast: Start Early Raincatcher Podcast.
Have a clear strategic goal and a compelling investment thesis. Starting early before the deal is about to close is going to create money as well as extended value for your business.
Is this your first time selling a business? In most cases, the business buyer has acquired more than one company. As a seller, you’re at a strategic disadvantage.
Do you have an understanding of the strategic reason why buyers are interested in your company?
It’s a big deal to sell your business. It’s not all about spreadsheets. It’s as much about the heart as your bottom line. Raincatcher is here to help you navigate that part of it too.
Mistake Two: Ignoring the Emotional Impact
“95% of businesses that we work with are original owners, founders, first-time business sellers, and this is a lifetime event,” says Jason Thomas, Raincatcher Co-owner and COO. “This is not just a business transaction, it’s not like going out and selling a house. The business is their identity.”
Jason explains how first-time sellers are Raincatcher’s specialty on the Business Leaders Podcast: Selling Your Business and Reaping the Benefits of Your Hard Work
People can struggle with post-sale emotions. Navigating those waters is deceptively tricky.
A broker should help you consider your future. It’s not just about the sale- it’s about who you plan to be after it’s closed. And that takes some honest planning- with soul-searching too.
Selling a company is an intense, multi-step process. You have to expect it will be a great deal of work as the current business owner.
Mistake Three: Taking the First Offer
Don’t let the first offer be your only offer. More importantly, understand that receiving an unsolicited offer does not mean you should skip the process of hiring a business broker. Quite the opposite, in fact.
Studies have shown that a professional advisor can add up to 15 to 20 percent to the selling price of a company. That more than offsets the 10 percent brokerage fee.
“A broker who cares about the business owner will strive to find the right fit in a buyer for your company,” says Raincatcher Senior Broker Mark Halma. “That fit is incredibly important, even though sellers may focus on price at first. A broker that takes the time to collect several buyers for your review will ultimately leave both you and the buyer in a better place once the sale closes. Deal tension between buyers naturally leads to higher sale prices too.”
To learn more about how a broker finds the right fits in a buyer for your business, watch Mark’s video on the subject here.
As a seller, you should focus on continuing to grow your business while you bring it to sale. An increase in value could occur during that time since you’ll be hyper-focused on your finances.
A broker looks at a deal through the lens of a potential buyer, lending sellers what would inspire a buyer to accept or reject your business as an option.
You want to generate interest in multiple buyers for your business. Deal tension between buyers creates competition, and competition is a good thing for you- the seller.
Mistake Four: Overpricing Your Business
“This is probably the number one reason why a listing that goes to the market doesn’t sell. It’s simply overpriced,” adds Jason.
“That is where Raincatcher comes in,” he says. “We ensure [sellers] have realistic information and set realistic expectations about what their business really can sell for.”
This is a marketplace. We are selling a business, and you have to treat your business like a commodity.
Our role is to provide context. There are hardly any deals that we can collectively recall where the business sold for the same price that the seller believed it should be. It takes time to build the business in the correct ways if you want a higher price.
Mistake Five: Not Having Your Books in Order
“One of the first questions that business owners ask is, ‘why do I even need to care about my financials? Isn't that something that my accountant can do?’” says Raincatcher CEO Marla DiCarlo in her webinar on cash flow management.
“Yes, your accountant can and should do the transactional work,” says Marla. “However, as an owner, you also need to understand your financials, and the main reason is that you can't fix what you don't know.”
It’s important not to confuse budgeting with forecasting. Marla compares your budget to a roadmap, while your cash flow forecast is like your GPS. “The cash flow forecast is going to say, ‘whoa, hold back we have construction on this path so we're gonna have to reroute you this way.’”
Many business owners wait too long to get that first valuation. Empower yourself by measuring the value of your business so you can improve it.
Raincatcher helps entrepreneurs sell their companies by maximizing the full value before they sell. And sometimes, that takes a little bit of exit advisory support.
Much of our work at Raincatcher is making sense of those books by recasting them. We recast the financials to view them through the lens of brokerage and make them relevant to our scope of work.
Mistake Six: Not Finding the Right Broker to Represent You
An effective business broker can help you maximize the proceeds that you receive for the sale of your business. Perhaps the most valuable role for a business broker is the ability to identify prospects, create a marketing and listing package, and create buyer tension to maximize the purchase price and terms of the sale.
A business broker must be an experienced professional who will work as a trusted advisor throughout the entire process of your business sale. If you’re ready to sell your business, contact Raincatcher to see why they’re the perfect broker for your sale.
Are you ready to talk about selling or building value for your business? Our trusted team of advisors and brokers is here to help.
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