As a business owner, your company is one of your most prized possessions. The last thing you want to do is screw up when you eventually look for its buyers. While there are several ways that can happen – and some are out of your control – here are three common errors that business owners make when they are preparing to sell their businesses.
1. You’re not thinking like a buyer.
When you prepare to exit your business, the first step is getting in the right mindset. Just as you need to understand customers’ motivations when selling products and services to them, you need to alter your thinking to that of a buyer when selling a business.
To do this, ask yourself: What characteristics would I want in a business that I would acquire? Stability. Organization. Diverse customer base. Long-term contracts. Future profitability. Strong management team.
You need many – if not all – of these things to attract buyers that are willing to pay a premium for your business.
These answers also indicate something else: Buyers are adverse to risk.
Keep these findings in the back of your mind as you start the exit process. Regardless of whether you’re one year out from selling your business or 10 years out, understanding the buyer’s point of view is key to building a “buyer ready” business.
2. You don’t have proper financial documents.
During the due diligence phase of the selling process, a buyer will expect to see your company’s financial documents.
Before you turn over these files, you need to recast them. Recasting is an accepted method of removing or adjusting items on statements that are unrelated to the ongoing business.
Many private business owners legally underreport earnings for tax purposes, but this undervalues a company, making recasting necessary to find out what a company is truly worth so you can identify a good offer.
To summarize: Without recast financials, you’ll never know which offers to accept or reject.
3. You don’t have experts on your side.
When’s the last time you sold a business? Unless you’re a serial entrepreneur, it’s likely that the answer is never.
M&A advisors help private business owners sell their companies every day. They know the most efficient ways to recast financials, to find buyers, to identify a company’s intangible assets, and to get maximum value for a company.
You could try to sell your business on your own. You could try to recast your financial statements, find multiple interested parties, and negotiate the deal by yourself.
But do you have the time and knowledge to get the optimal value for your most prized possession? Probably not. Plus, you’d have to accomplish all these deal-closing tasks while running the business.
Most often this means that you will either neglect the business, which can lead to reduce revenue or profits, or you will neglect the sales process and wind up with a less-than-optimal-deal with a wrong buyer.
Don’t try to save money and end up losing money in the end. Hire an expert to guide you along the way.
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Want to learn more about other common mistakes business owners make when selling a business? Read Generational Equity’s complimentary whitepaper, 5 Mistakes To Avoid When Selling Your Company.