Selling a business is no small matter — especially when it is your business. That is why it is essential to lean on the expertise of experienced professionals whenever possible. At Viking Mergers & Acquisitions, we have over two decades of experience buying and selling businesses, so we understand both sides of the negotiation table, and we can help sellers avoid common mistakes and get the most for their business. Over the years, we have identified a few of the most common pitfalls sellers face and practical tips to avoid them.
1. Know the value of your business.
While every owner starts a business with a growth plan, very few have an exit plan. The vast majority of business owners (85%, to be exact) do not have an exit strategy for their business, and 65% do not even know how much their company is worth. Even if selling the business is not in the immediate future, having a plan and knowing the value of the business is essential for any business owner. If you are thinking about selling your business, then knowing its value is of the utmost importance. Accurately determining that value takes time and expertise.
A formal business valuation is the most important piece of financial information you can possess regarding your business, even if a sale is not imminent. Many factors contribute to the true market value of a business, and there are multiple valuation formulas to consult. No one magic multiple or value ratio applies to all businesses. Financial and market trends, geographic location, customer concentrations, and many more dynamics must also be considered. Every business is unique, so accuracy requires a comprehensive approach and analysis by professionals like ours at Viking.
2. Have proper documentation.
Simply put, a business without proper financials normally is not a sellable business. It is reasonable and commonplace for a buyer to expect professional documentation. This begins with the valuation described above. For the valuation process and the sale, sellers must prepare the past 3 years’ Federal Tax Returns for the company, past 3 years’ Profit and Loss Statements (P&L), including balance sheets, Interim Profit and Loss Statement (P&L), including balance sheet and a year-to-date comparison for the same period last year, and copy of the lease or property tax bill if property is owned by the business owner. A seller must also prepare asset and inventory lists, customer concentration breakdowns, and any other pertinent material that may need to be examined by a buyer.
While this may sound incredibly daunting, a seller does not have to navigate this on their own. At Viking M&A, our staff works together with the seller to plan for and execute a proper valuation, marketing plan, and exit strategy to achieve the best outcome.
3. Consider multiple buyers.
Selling a business can be complex. So, it is understandable that, even if multiple buyers show interest, owners commonly prefer to deal strictly with one suitor. It feels less complicated than juggling multiple prospects. Unfortunately, negotiating with only one buyer inherently limits the sales price. Actively seeking and engaging with additional buyers often increases the sales price. Yes, it also increases complexity, but the payoff is worth it. Additionally, owners must remember that negotiations include factors outside of the price itself. Factors like the method of payment, type of transaction, and the inclusion or exclusion of various assets are all part of the transaction.
Remember, before negotiations even begin, each buyer should be carefully vetted to ensure they are a good match for your business. Here, a professional intermediary can make all the difference. At Viking M&A, prospective buyers are carefully vetted before they are ever presented to you for consideration.
Through decades of experience, Viking M&A has developed a streamlined process and system to equip an owner to sell his or her business for top dollar — and at a closing rate that is four times the industry average. Our experience can help you avoid common mistakes, give you actionable insight on how to maximize the value of your business, and guide you through the process. If you are selling a business, contact us today for a no-cost consultation.
- 5 Important Valuation Concepts Every Business Owner Should Understand
- 7 Steps to Selling a Business
- How to Sell a Business: Broker vs DIY