Top 4 Mistakes When Selling Your BusinessDec 09, 2022
Those of you who know me, know that I created this company to help business owners avoid the massive list of mistakes I’ve seen as an attorney in sales deals. You know, the kind of mistakes that can get an incredible deal canceled, or turn away your favorite prospect before the sale goes through.
During my career, I've helped lots of clients sell over a hundred million dollars worth of businesses, and now I work as a coach and a strategist to help business owners prepare to exit their company.
Even though in my 10+ years as a business attorney I’ve seen every mistake in the book (and trust me, there are LOTS of mistakes to make when it comes to selling your business), I can clearly distinguish the four that can truly make or break a deal.
That’s why I’ve compiled this list for you with action steps so you can rule out these classic pitfalls in business. These are the 4 top mistakes to avoid when selling your business:
1. Preparing To Sell Only Once ‘You’re Ready’
The #1 mistake business owners make is waiting until they want to sell to come and see me. It is often the case that owners walk through my door expecting to sell their companies in 6 months to a year, and by that time, we have already missed the boat on their best opportunities.
What’s worse: business owners are often anxious to sell right away. That doesn’t leave enough time to put all the legal documents in place to attract the strongest buyers.
So, what happens instead?
We are forced to package up what’s already there and make the best we can out of what documents exist. We need to rush to market the company, so we miss out on a lot of its value.
If those same business owners had come to me a year (or a few) before, we would have had time and space to:
- Create the legal documents they needed to make their business sellable
- Think about what type of buyer they needed to walk away with the best possible deal
- Set expectations about the selling price of their business so we could work on increasing its value up until the time of selling
- Set up financial reports and legal structures to get the company ready for a smooth sale
And that would’ve landed them a much better deal. Which leads to mistake #2…
2. Not Understanding The Sale Process
The second biggest mistake that I see business owners make is not understanding what the sale process is going to look like. This then translates into not only looking, but being unprepared – which can put off buyers and harm your sale deal.
To make it simple, here’s what always goes into a sale process:
- Finding a buyer that’s interested in your business and can offer the outcome you’re aiming for and negotiating an initial price based on the value of your business. Sometimes this involves a letter of intent or term sheet.
- Due diligence: the buyer will send you a request for all your business records, financials, taxes, legal documents, litigation history, employment records, etc. within a week or two, to ensure your company is really worth what they’re about to pay.
In this phase, they’re looking for any red flags that would get them to pull out of the deal, or weaknesses that might help bring the selling price down.
Due diligence is a phase where sellers tend to be unprepared and make the mistake of not telling a strong, compelling story about their business through their documents. That’s how buyers then get away with better deals than sellers.
As a business attorney, I’ve been on both sides and can tell you that if a buyer is savvy, they WILL use this to negotiate the terms of sale. Knowing how your specific sale process will go is what will help you prepare and anticipate anything the buyer might ask for, giving you all the leverage and none of the risk (which is why clients work with me as a consultant for their business exits).
3. Selling Out Of Desperation
Acting –or reacting– out of panic is never a good idea, but this applies especially to selling your business!
You’ve spent years, maybe even decades building up what you’re about to sell.
There are 2 situations in which I’ve seen business owners act out of desperation:
- Situation A: They are so burnt out by their business that they’re desperate to get out. They either come to see me way too late or they never do and they shut down their companies directly. Ironically, they have worked themselves so hard in their business that they end up missing out on the profit they could’ve made from the sale – they simply walk away.
- Situation B: Illness or unexpected death. Unfortunately, we’ve seen a lot of business owners pass away unexpectedly during this pandemic and leave behind a business that was thriving. Without a succession plan in place, this becomes a huge mess for their families or team members to clean up. Even when they do manage to clean up and sell the business, they receive a lot less than they could have, had they had a plan in place. And when they don’t, the business often falls apart, leaving a huge mess to their heirs, team members, and employees.
There are policies that you can put in place to create a cash event in your business while it transitions into a new ownership structure. Not preparing in advance and selling out of desperation will always land you less money for your company.
4. Undervaluing Your Business
Believe it or not, your business is worth a lot more than you think it is. This is true for most business owners I’ve encountered in my 10+ years as a business attorney.
I have actually seen this mistake happen so many times, that I created a Free Business Value Calculator to help you get an estimate of what your business might be worth as it is right now.
Even if you think your business has no value if you’re not running it, it does. If your business is reasonably successful and you're earning revenue every single year, then chances are, we can take your business into that next phase of being able to run without you.
Even if you don’t have a ton of assets, even if your business is contained to the online space and you’re running it from your laptop, there is still value that you can sell it for, because someone else can come in and step into that revenue stream.
So remember: don’t underestimate the value of your business – work with an expert to determine what it’s really worth and sell it for top dollar!
If you arrived at this article because you’re thinking about selling your business…
Don’t make mistake #1! Make sure you work with me or a consultant to start planning what you want to get out of your business when you move on.
How big do you want your business to be when you sell? How much do you want to sell it for? What kind of buyer are you looking for? Do you plan to make a sale or simply remove yourself from the day to day?
Whatever your preferred exit is, we will design the plan to make that happen and prepare for any unexpected events that could happen along the way. And with an Exit Strategy in place, you will start benefiting from and enjoying your business way before selling it!