Did you know that, according to BizBuySell.com, 80% of businesses listed for sale do not sell, and 50% of the transactions that go to contract never close? Don’t be that business! Here are five more fatal mistakes from this series on the fatal mistakes to avoid when selling your business.
6. Failure to use proper negotiating techniques. With most transactions, failure to use proper negotiating techniques can cost the seller substantially with regard to price, terms and – in some cases – the transaction itself. One of the main reasons transactions fail to close is due to poor communications, along with having to deal with third parties such as bankers, CPAs, family and friends. An intermediary with an understanding of the emotional issues of the parties has the ability to control the issues and can act as a buffer between parties, thereby allowing the seller time to make reasonable decisions.
7. Failure to secure qualified buyers. Knowing how to qualify buyers is critical. If you are doing the qualifying as the seller, a buyer could feel uncomfortable with that. Since most transactions are funded with SBA-guaranteed loans, it is important to understand all the elements needed to establish the total package and the amount of cash injection (down payment) the bank will require. It is important that the buyer understand upfront that their home will most likely be used as additional collateral, and that there is the potential to require other marketable assets as additional collateral. You need to establish how much the buyer will have to withdraw from the business to cover their lifestyle, and the debt service, and whether what is left will cover the 1.2 required debt-coverage ratio. For a seller to accomplish these tasks without the services of an intermediary will be challenging at a minimum.
8. Failure to properly structure the transaction. A seller who is unfamiliar with alternative ways to structure a transaction is at a disadvantage. Alternatives might include offering a small amount to the sale price as a stand-by loan that the buyer can use toward the required cash injection for the SBA-guaranteed loan to help the buyer qualify for the loan. It could be helping the seller structure how proceeds are paid to reduce federal taxes to get the seller the net cash required; it could be having the seller be paid an ongoing consulting fee or a royalty.
9. Failure to market the opportunity. If you are going to try to market your business yourself with a limited budget, you will find it very difficult to generate enough potential buyer activity to find the buyer willing to pay the best price. Having an experienced intermediary or business broker who knows how to write content that commands attention, and the budget to get the best placements, can make the difference. To get the best price possible a multi-prong approach also includes having a large database of buyers with which a relationship has been established. A network of licensed broker colleagues also adds additional potential buyers to consider your opportunity. An important part of getting desired results is having all the information ready that a potential buyer will want to see, once a non-disclosure agreement has been signed and the buyer qualified. As important it is to reply immediately to all inquiries, and to follow up on the inquiries, which can be challenging if you are simultaneously managing your business.
10. Failure to control the transaction. If the seller is the person driving the transaction and has no experience in the sales process, it will be extremely challenging to control the transaction. I have been involved in business brokerage – helping owners buy or start, run, grow and manage businesses to maximize profits – for more than 40 years. I know what and when information should be released to a potential buyer, what information should be released about customers and employees if any, how to get the buyer to make an offer, and helping a buyer accomplish that task. Additionally, when to start due diligence, how to get the buyer long-term financing, when to have the buyer engage an attorney to prepare a purchase agreement, and when to refuse access to certain records or information.
If you would like a confidential, no-obligation analysis and discussion of what you can be doing now to prepare for when you are ready to sell your business, please call (888-893-6661) or e-mail (email@example.com) me. I serve customers nationwide. To learn more about my background and see customer recommendations, visit my LinkedIn profile at http://www.linkedin.com/in/dolansales.
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