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10 Common Mistakes to Avoid When Selling Your Business
What is the single most important day in a business owner’s life? Well, if you don’t count the day they started their business, it may be the day they sell their business. Deciding whether and when to sell a business, to whom, and for what price may be some of the toughest business decisions an owner will make. Being well prepared can help make the process less stressful and more profitable. Here are ten of the most common mistakes, and how you can avoid them:
1. Know What Your Business is Worth
The best way to protect your investment is to have a proper valuation of your business done by a qualified business valuation expert before talking to any potential buyers.
An experienced business attorney or business broker, as well as a Certified Public Accountant can also obtain a proper valuation.
2. Use a Business Broker
While in absolute dollars the fee paid to a business broker can be significant. But, in many cases, it is money well spent. A business broker will help you value your business, screen potential buyers, and expedite the closing process. Using a business broker may also help keep the sale of your business confidential. An experienced broker will have a list of potential buyers, which should result in a faster sale.
3. Proceed with Caution, Not Emotion
If you’ve been approached by someone who wants to buy your business, it may be flattering, but don’t be seduced into negotiations unless you are committed to selling and have made the necessary preparations. Think through these basic questions and write down your answers:
Is this the right time to sell?
Do you want to continue with the business after the sale?
Do you have the expert advisors you’ll need to help negotiate the sale?
4. Don't Say Too Much Too Soon
Keep your thoughts about selling the business confidential. News that you are contemplating a sale could prompt valued employees to pursue other employment, could harm your customer relationships, and could strengthen your competitor’s position in the marketplace. You’ll also want to avoid meeting the potential buyer(s) at your place of business. And, consider using a business lawyer, business broker, or other professional intermediary who can meet with the potential buyers off-site.
5. Avoid Unqualified Offers
Request and review the buyer’s financial statements and access to capital. It makes no sense wasting your valuable time and energy negotiating with a buyer who cannot finance the transaction. Also, learn about the potential buyer’s business acumen, management personality, and marketing support. Remember, a qualified buyer who can optimize your business opportunity will likely offer you the best value for your business.
6. Talk to More Than One Buyer
The only way to be satisfied that your business sold for its top market value is by negotiating with multiple buyers who represent different reasons to acquire your business.
7. Be Careful When Offering Your Business to a Competitor
In many instances, a competitor is your ideal buyer and this is why it is important to use a business broker. However, it is imperative to have a proper non-disclosure agreement signed at the earliest stage of the negotiations If the negotiations fail, the competitor can use your information to their advantage. DO NOT reveal: customers, suppliers, specific product margins, trade secrets, information about unprotected technologies, corporate or marketing strategies, or detailed balance sheets until you have a signed purchase agreement. A business attorney can draw up a non-disclosure agreement if you don’t have access to one.
8. Do Not Ignore Your Estate Plans
Your business is likely one of your most valuable assets. Selling it will have a tremendous impact on your estate. Before executing a sale, review your estate plan and consult with an estate planning attorney. There may be ways to structure the sale to further your estate planning objectives. At the very least, your plan may require revision after the sale to accommodate your newly liquidated assets.
9. Consult With Your Tax Advisor
Any sale of your business will have tax consequences. However, most transactions can be structured to give tax benefits to either the buyer or seller. Whoever receives which tax benefits is usually the result of negotiations between the parties and their advisors.
10. Use a Business Lawyer
These days, the practice of law is too complicated for any one lawyer (or perhaps law firm), to be all things to all people. If you are using a lawyer that isn’t familiar with the process of selling a business, you may leave money on the table, needlessly expose yourself to post closing liabilities, not close in a timely fashion, and incur additional legal fees. Your best choice would be to hire an attorney whose understands all areas of Business Law.
CONCLUSION
If selling your business is in your future, the Law Offices of Ronald J. Axelrod & Associates should be one of the first items on your action plan. Ron Axelrod and his associates have been assisting business owners sell their businesses for many years. Your interests and protecting the investment that you’ve made in your business is our number one priority. Ronald J. Axelrod is not only a Business Law attorney, he has been a business broker for over 10 years, which makes his services even more valuable. Call for more information about selling your business the right way. Call (585) 314-7100. Or EMAIL US with your contact information.
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