7 Common Mistakes Sellers Make When Selling Their Business
Selling your business is a major life decision. Unfortunately, inexperience and lack of information can prevent an owner from maximizing their hard earned value when its time to sell. By partnering with Viking Mergers & Acquisitions, you can avoid these costly mistakes.
1. Not Knowing the Value of Your Business
Every business owner has a business and growth plan when they start their business, but very few plan an exit strategy in advance of considering a potential sale. Today, 65% of business owners to not know their company worth, and 85% have no exit strategy.
2. Using a Multiple or Value Ratio Learned From a Book
There is no single multiple or value ratio that applies to all privately held businesses across the board. Each business is unique and requires a comprehensive review and analysis of the company. Many considerations, including demographics, geographic location, financial and market trends, customer concentrations, and current dynamics in the M&A marketplace can all factor into determining a true market value for your business.
3. Selling at the Wrong Time
Many business owners wait too long to sell, many times because they wait too long to being planning an exit strategy. They invest their entire working life in building a business, which often represents a significant percentage of their retirement fund, only to lose leverage by waiting too long to sell. That in turn, limits their ability to maximize value at the exit. With a professional exit plan mapped out, the implementation is executed at exactly the right moment. To limit exposure to potential, and often unforeseen, pitfalls such as health issues, downward business turns, burnout, or the desire to pursue other interests, its important to have a plan in place.
4. Negotiating with Only One Buyer
Business owners often receive inquires from prospective strategic buyers that are in an acquisition mode. Rather than actively seeking out additional buyers, owners sometimes feel more in control when dealing with a single suitor. However, generating interest from multiple buyers often increases the sale price. Owners must also keep in mind that negotiations do not stop at price, type, or buyer. There are numerous factors including type of transaction, method of payment, included/excluded assets, and seller retention post close, that come into play during the transaction that an experienced intermediary can help the owner navigate.
5. Rushing the Sales Process
When a business owner decides to sell, they want the process over quickly. However, there is a systematic process of identifying prospective buyers, leveraging buyers to induce multiple offers, negotiating the best deal, drafting documents, and finally formalizing and signing closing documents. The entire process generally takes between 5-8 months. It can be time-consuming and cumbersome. At Viking Mergers & Acquisitions, we meticulously manage every step of the selling process on your behalf while you continue to do what you do best, which is manage your business.
6. Not Understanding a Buyer’s Perspective
While the value of a business is ascertained from the most recent historical financials, a buyer is looking for potential. A buyer sees growth opportunity, multiple avenues for development, and potential synergy. Before diving into past performance, from a financial or productivity perspective, each buyer must be carefully vetted, interviewed, and qualified to ensure the best match possible for your business. At Viking Mergers & Acquisitions, our process carefully examines each potential buyer. You can be sure that we’ve done extensive research before you ever meet any possible successor.
7. Inadequate Documentation
Buyers expect professional financial documentation, and rightly so. A business without proper financials many times isn’t a sellable business. Sellers must prepare a recasted financial analysis of the past three years that includes corresponding tax returns, profit and loss statements, balance sheets, asset and inventory lists, customer concentration breakdowns, and any other pertinent material that a buyer may need to examine. Collectively, the seller and our staff at Viking Mergers & Acquisitions can plan for and pull together a proper valuation, marketing process, and successful exit strategy to achieve maximum value for your business upon the final liquidity event.
Viking Mergers & Acquisitions can help you begin the process of developing an eventual exit strategy through our no cost, no obligation business valuation. We can identify roadblocks to a potential sale, and find opportunities to increase the current value of the business. It’s a great way to start planning for a successful and profitable exit from your business, even if it’s years down the road.
Josh Stamey is a Partner at Viking Mergers & Acquisitions. He began as a Senior Advisor in late 2016 and quickly made his mark in the M&A space, being named a firm Partner in the summer of 2019.
Josh develops customized exit strategies & recaps for small & middle market companies all over the Southeast. He specializes in full and partial divestitures, financial analysis, business valuations, financial & legal diligence, transactional negotiations, buyer management, SBA financing, business development and business operations.