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4 Common Mistakes Business Owners Make Before Selling Their Business

By: David Kuzma
|
April 24, 2022
April 24, 2022

Are you getting ready to sell your business? If so, you need to make sure that you avoid these 4 common mistakes to ensure you position yourself to receive top dollar for your business! Making these mistakes can cost you time and money and could even jeopardize the sale of your business. It's vital not to be distracted by your frustration when trying to maximize your business sale. The majority of problems and hurdles that many sellers face may be avoided simply by being more informed on the challenges of selling a company in today's market. There are numerous difficulties to overcome in a company sale, but these four have the most significant influence on both your business sale and your peace of mind. An Inadequate preparation process is by far the most prevalent blunder made by small business owners, and correcting these four errors will better prepare you for success.

Mistake #1: Customer Concentration

When potential buyers discover high customer concentration during their due diligence process, this can significantly reduce the business valuation of your business. Too much reliance on a few large customers can leave the new owner vulnerable if they were to suddenly stop doing business with you. It's important to have a solid plan in place for when (or if) this happens. By evaluating your revenue per customer and your customer concentration, you can get a good idea of how risky your business is. If most of your revenue comes from just a few customers, it's important to build a strategy to diversify your customer base as soon as possible.

For most business owners, a good rule of thumb is to have no more than 5-10% of your revenue come from any one customer. The lower the percent by customer the better, this will directly increase the value of the business.

Mistake #2: Credibility of financial information

Are your financial books clean? Potential business buyers are going to do their due diligence and examine your company's books. In the due diligence phase, if there are any discrepancies, it could lead to the prospective buyer backing out of the sale or renegotiating the price. Make sure that all of your financials and financial statements are in good order and accurate before putting your business is on the market. Many owners don't spend enough time ensuring their books are in good order.

If it has been a while since you've updated your books, do this now. Hire a reputable accounting firm to clean up the books and provide you with a trends analysis of the last 3 years. This will give you insights into any areas of concern and give you time to address the concerns before a potential buyer discovers the same concerns.

Every potential buyer will begin the sale process by going through your books. This is a crucial first step and provides key details into the day-to-day operations of the business. Instilling confidence with clean books evaluates your business in the buyers’ minds and is the first hurdle in a successful transaction.

Mistake #3: Shareholders or family members aren't on the same page

For a business owner, the decision to sell a business can be a very difficult decision for all involved in the process. In particularly for the shareholders of the selling company. If these shareholders are not in agreement with the sale, it will only complicate and lengthen an already difficult process leading to deal fatigue. Selling a business is often a very emotional decision, so agreeing on what is best for all parties involved is critical.

It is important early on to conduct meetings with all the shareholders involved to discuss their goals, concerns, and what they would like to see come from the sale of the business. If these meetings do not happen, or if disagreeing shareholders are not willing to compromise, it can lead to a longer and more difficult process down the road.

In addition, family members can also complicate the sale of a business if they are not on the same page. If there is tension among family members, it will be difficult to negotiate a deal that everyone is happy with. There need to be open discussions about their feelings and what they would like to see as an outcome from the sale of the business.

Mistake #4: No Personal Goals and Objectives After the Sale

This is the Number 1 regret business owners have after the sale of their business. They don't know what to do next. They've been so focused on the business and the transaction process; they haven't taken the time to develop themselves professionally or personally.

They need to create a plan for their future and set some personal goals and objectives. What do they want to achieve in the next phase of their life? How can they use their skills and experience to continue growing and contributing?

Without a plan, many business owners find themselves bored and unfulfilled after the sale. They feel like they've lost their identity and purpose. It's important to take some time for reflection and figure out what you want to do next.

Don't make this big mistake! Plan and set some personal goals and objectives. It will give you a sense of purpose and direction after the sale during your transition process.

Conclusion:

The decision to sell a business and the selling process can be difficult and emotional. If you want your company to fetch above fair market value, all financials must be in order and accurate before putting your business on the market.

You should also make sure shareholders or family members agree with selling the company for the best results. When considering how to plan for life after the sale of your business, set some personal goals and objectives so that you don't find yourself unfulfilled afterward!

By overcoming these common mistakes owners make when selling their business, you can be confident in a successful and profitable exit.