Selling a business can be quite an ordeal. It can take years to get finances and documentation in order, find a broker, and attract the right buyer, and even one wrench in the works can cause significant setbacks.
Business owners who want to maximize profits from their sales should start preparing well in advance. They can get started by reading up on the five biggest pitfalls to avoid when selling a business.
Steer Clear of These Issues When Selling a Business
1. Deal Fatigue
Even with the help of a qualified business broker like CGK Business Sales, pushing through a sale is a marathon event, not a sprint. Selling a business can take anywhere from one to three years. Buyers change their minds, due diligence takes time, and there are a number of hurdles that must be cleared before the deal can close.
Business owners should be prepared to wait anywhere from 12 to 36 months before the deal goes through. Knowing what to expect can make it easier to resist the temptation to accept lowball offers or neglect daily operations as the broker looks for qualified buyers, both of which can lead to lower profit margins.
2. Stepping Out Early
If there’s one way to ensure that a business sale goes sour, it’s to stop putting in the work before the final closing. It’s very common for sales to fall through. If the current business owner has stopped putting in the work and sales are trending down, as a result, the company’s value will be lower and it will be even harder to find a new buyer.
Business owners work hard to make their companies profitable. They should continue to put in that hard work until the very day the deal goes down. Working with a qualified business broker makes it much easier to remain focused on the company’s day-to-day operations by saving business owners time and allowing them to focus on what they’re good at.
Just like business owners are experts in their fields, brokers are pros at marketing businesses and running the entire sales process. Unfortunately, though, even the best broker won’t be able to make up for a lack of continued effort on a client’s behalf. Stay focused and keep everything on track until the broker finds a buyer and closes the deal.
3. Not Vetting Potential Buyers
Not all people who reach out about a business for sale are sincere in their expressions of interest. Competitors and other bad actors often reach out claiming to be prospective buyers when what they’re really looking for isn’t a new business, but insider information.
A solid non-disclosure agreement with robust non-solicitation provisions is a must for any business owner concerned about sharing critical information, but it won’t replace the need for performing due diligence. Do some research into prospective buyers and learn what questions to ask to weed out people who aren’t genuinely interested in making a deal. Here are a few questions that can offer insight into prospective buyers’ motivations:
- Why is he or she looking to purchase a business?
- Does the buyer seem trustworthy?
- How will the buyer pay?
- Are there business references who will speak to his or her integrity?
- Has the buyer acquired other companies in the area or industry?
If the prospective buyer is a publicly traded company, it’s easy for business owners or their partners to perform some due diligence. Research the company’s SEC filings. The results of that research should offer business owners some insight into whether the company is both reputable and sincere in its claim that it plans to make an offer.
4. Allowing Employee Rumors to Flourish
Though it’s important to let company leaders in on plans to sell, average employees don’t need to know about the impending sale too early. If one or more team members hears about the possibility of a sale, it can cause significant disruption to day-to-day operations. Rumors spread, productivity levels drop, and some people may even leave their positions out of unfounded fears of job insecurity.
When bringing leadership into the mix, provide clear guidelines about confidentiality. Business owners should maintain tight control over communications. They should decide when and how to let employees know about a potential sale and maintain careful control over the narrative to ensure that the whole company stays on track until the deal goes down.
It’s best to wait until the sale has been finalized to let employees in on what’s going on. Once that happens, business owners can leave it to team leaders to share the news. It’s only after everyone has had time to process the information that the new owner should receive an official introduction.
5. Sharing Information With Customers Too Early
Like a company’s employees, its customers will need to find out eventually about a planned sale. That said, don’t let them know too early, and don’t share customer information too soon in the sales process. Buyers should be required to sign clear non-solicitation provisions before getting their hands on customer lists, and the decision about when to let those customers know about the change in management should be left up to the current business owner.
Building up the company’s customer base is one of the best things a business owner can do in the months or years leading up to a sale. Unfortunately, it can be harder to convert new leads if the people at the end of the sales funnel are concerned about the company’s impending change in leadership. Avoid letting the cat out of the bag until the time is right.
Stay the Course and Reap the Benefits When Selling a Business
If business owners don’t fall prey to the five pitfalls described above, they can expect a substantial profit from the sale of their companies. Working with a qualified broker and communicating openly about potential complications and concerns is the best way to make sure the whole marketing and sales process stays on track. When in doubt about whether to share information, take a potential buyer seriously, or let stakeholders know about an impending sale, consult the broker first.