If you want to sell your business quickly and for a decent profit then you absolutely need to avoid these 7 critical mistakes many business owners make when trying to sell their business…
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Hi, my name is Nathan Goldstein with Vested Business Brokers. We help people buy and sell profitable privately held businesses. We’ve closed over a thousand of them. We probably do this business better than anybody else in the world. Today we’re going to discuss the seven mistakes that sellers make when they put their business up for sale.
Mistake #1: Not having the Proper Confidentiality Agreements in Place
It is crucial that you have the proper confidentiality agreement in place before you speak to a potential buyer about your business. Literally, 99.9% of the sellers who go out to sell their business on their own make this critical, very dangerous mistake of talking to people. You don’t know who you’re speaking to. It can be a competitor or the competitor’s brother. Now you’re excited, you have a buyer, and you’re now sharing the private information, your private business model with this person, and it’s like giving them the code to the safe. Please, do not try to sell your business without the proper confidentiality agreements in place.
Mistake #2: Putting the Name of Your Business in Your “For Sale” Ads
The second mistake that we’ve seen, and we see it all the time, is that the seller puts the name of their business in their ad. Now, folks, you don’t want to do that. It’s very bad because if you were a client of your business, and you knew that the business was up for sale, would you continue to do business with that client? So everybody gets nervous. So first of all, your business customer gets nervous, and then if somebody comes in and says, “Oh, I heard that your business was for sale”, and says it to one of your employees, now your employees start to get nervous. So you’re creating your own earthquake within your business, and walls start rattling and you start to get nervous, and it’s out there. And once it’s out there, you can’t take it back. So do not put the name of your business in your ads.
Mistake #3: Not Having a Process to Properly Value Your Business
Often business owners think they know what the business is worth, but they don’t properly value the business based on what’s called “owner’s discretionary cash flow”, the benefit to the owner, and what multiple that business should be sold at. So there are many different aspects to that, like if there’s a license, or the business has a specialized asset like a website that has value. It might demand a larger multiple, but if you don’t get all the multiples correct, you might improperly price your business. Very important to make sure that all your assets are priced correctly to the peer group.
Mistake #4: Giving Out Too Much Information Before You Have a Letter of Intent From the Potential Buyer
A letter of intent is a written agreement signed by a potential buyer which formally states the buyer’s intention to purchase a particular business.
Many times we see a seller give all of the information to a potential buyer and then they’ll never hear from that buyer again. The buyer has not had a formal process to buy the business. Do not give the buyer all the information until you have a letter of intent in place and you know what his intentions are.
Mistake #5: Not Believing That Your Business CAN Be Sold
Listen…if you have a PROFITABLE, privately held business, the it is a business that CAN be sold. Said another way…if your business is in profit, then there will almost certainly be a buyer who wants to buy it.
Mistake #6: Thinking That Your Business is Worth More Than It Actually Is
Pricing the business above the peer group without the proper terms and conditions could really dramatically affect your sale. In fact, you might not sell your business. Now eighty percent of the businesses that come to market, come to market with the wrong price and the wrong terms and they don’t get sold. So it is critically important to price your business correctly.
What is the “moving market”?
Many times, I’m asked, what is the moving market. Well, you know, a company in New York might sell at a higher multiple than a company in Louisiana. So it depends on where you are, the location, how long the lease is, and what the market is, what the market bears, the local market bears for the multiple for your category. If you have a competent broker, he should be able to tell you where the moving market is at any given time. Here at Vested, we keep that data in every single category that we sell.
Mistake #7: Trying to Sell Without the Help of a Business Broker
A competent broker like the professionals at Vested Business Brokers will have a process to sell the business. The first process is you fill out a listing agreement. A valid listing agreement can be exclusive to the firm or non-exclusive to the firm. The second process is that we register and profile every single buyer. We get confidentiality agreements signed so the buyer can get the information on your listing. It’s very difficult for a seller to ask a potential buyer for a confidentiality agreement before they speak. They critically make that mistake all the time.
We’ll go over the processes with you, and we’ve sold over a thousand transactions. We know how to get the deals done. We’ll help you get the best price with the right terms, the right conditions, meeting them at the moving market and getting you the price that you’re looking for, for your business. Now it has to be fair and equitable for a buyer. If you price the business too high, you’re never going to sell it. If you price the business with no terms, it makes for a much more difficult deal than pricing with the proper terms and conditions. That’s where the broker will come in and help you. I wish you luck.