6 Mistakes Business Owners Make That Prevent The Business From Selling
How you can position your business to sell?
The first mistake that business owners make is the failure to provide information and clean books and records about your business. Gather your financial statements and tax returns dating back three years. In addition, develop a list of inventory or equipment that's being sold with the business. Create a list of contacts related to sales transactions and vendors and gather any relevant paperwork that relates to your current lease. These are the documents that buyers will ask for so it’s imperative to have these documents ready or it will look like you aren’t serious about selling your business. Today’s buyers want to see clean books and records, which includes all cash on the profit and loss statements and tax returns. Looking at past history is crucial to determining future revenue potential. Failure to plan ahead and properly prepare these documents will result in a due diligence period that ends in failure.
The second mistake is a failure to maintain confidentiality. The less people that know the business is for sale, the better it is for you. Do not tell vendors or employees you are selling the business. Vendors may not want to remain loyal or may change the terms of the contract. Employees may get worried and leave.
The third mistake is a failure to continue to maintain your business at its peak operating capacity. Buyers will be inspecting the business. They will want to see that the business is growing and profitable. The business needs to be operating at the highest level or the buyer will get scared. In addition, if financing is involved, the bank will ask for an updated profit and loss statement. If the profit and loss has been drifting down, then the buyer will want to negotiate a discount off the agreed upon sales price.
The fourth mistake is a failure to agree to a non-compete. Buyers want to see that you aren’t a threat to open up the same business nearby. They are aware you know all the critical components of the business and don’t want to face you as competition.
The fifth mistake is a failure to place a proper value on the business. A proper valuation is crucial as buyers are very educated these days. If the business is listed for sale too high or too low- it will scare off potential buyers or reek of desperation. The value of the business is based upon anticipated earnings. However, to figure out these future earnings, the buyer needs to base it on past history. The financial statements must tie together and show a successful track record of profit and loss.Buyers do not pay for potential. They pay for past performance.
The sixth mistake is a failure to give professionals the information to properly market the business. It’s a must to help the broker understand the business. Besides for providing profit and loss statements, tax returns and a copy of your lease it’s imperative to also tell your broker about industry characteristics and growth opportunities.The broker is there to get you the highest price and they will not know all the ins and outs of the business. The more information they are given, the more opportunity there would be to make one-time adjustments to the financial statements, which would show the business in the best light to buyers.