Pitfalls When Selling a Business
Updated: Jun 12
When Should a Business Owner Start to Prepare for an Exit If you're a business owner with revenue between $2 million and $50 million and think you want to sell in the next two to five years, it's time to prepare NOW.
As a business broker and mergers and acquisitions advisor for over a decade, time and time again, I've seen sellers leave hundreds of thousands if not millions of dollars on the table because they were not prepared to sell.
One seller just last week wanted to retire right away -- but can't because he won't get enough money. (If he had come to us even a year ago, we could have helped him get that high-enough price now.)
Be aware of some common pitfalls that could cost you hundreds of thousands of dollars, if not more. And discover how owners can sabotage selling their businesses, if they're not prepared and informed.
The Odds of a Successful Sale are Against You -- But Preparation Can Change That
Over 80% of businesses listed for sale don't sell. But over 80% of owners plan to fund their retirement from the sales of their businesses. For most business owners, 50% to 90% of your wealth is tied up in your business. You might see this as a lower risk investment because you're in control, but life still happens. Unexpected factors can impact even the most stable businesses.
And if you're an owner over 50, the risk is even higher:
Over half of you will be suddenly and unexpectedly forced to exit your businesses due to one of the five Ds ̶ death, divorce, disability, disagreement, or disaster. It's foolish not to prepare for unexpected events. You need to do everything possible to ensure that you’ll get enough money when you're ready to retire or leave your company.
Should You Try to Sell on Your Own? Should you try selling your business on your own? Maybe you’re worried that you don’t know how to get the best deal. You might fear that you’ll leave a lot of money on the table.
For most business owners who try to sell on their own, they’ll likely generate a lot of interest. You may already be getting unsolicited offers. I've heard business owners talk about getting a letter every week from a private equity group.
The biggest problem is time and money. You can spend enormous amounts of time talking to these folks and getting them all kinds of confidential information.
In the end, you may get an offer that’s super low ball (or no offer at all).
Sophisticated buyers find ways to lower the price. These buyers know how to lower value and push the risk onto you, the seller.
There are thousands of private equity and strategic buyers constantly looking for businesses. Maybe you’ll manage to meet all of their initial screening criteria. But there's a good chance after you've wasted a lot of time, you either never get an offer or they put you through the ringer on deal terms until it doesn't make sense for you.
They often throw out a high price, but when you look closer, it's a bad deal.
I've seen several times where the initial down payment offered is actually less than the amount they want you to leave in the company for working capital.
They promise you big payments over time, but that's risky.
It depends entirely on them running the business well after you're gone.
So be very wary of your price AND their terms. You may never see most of that price.
It's also an emotional roller coaster. One minute, you're going to get a great price for your business, the next, the offer never came through or wasn't what it initially appeared to be.
You need an experienced guide to help you maximize the value of your business To avoid pitfalls when selling a business, you need preparation when dealing with these experienced buyers. And you need expert guidance in negotiating the best deal.
A good business or M&A broker can add from 10% to 100% to your value. But not all brokers come to the table with the same approach or experience.
We are “consultative” brokers who can help you prepare your business to maximize its value. We have a deep database of qualified buyers, and we can help you negotiate the best deal to achieve your goals. Contact Us to get started.