10 Proven Ways To Get Less When You Sell Your Business

Copyright (c) 2012 Barbara J Hartung

The vast majority of mid-market business owners have a substantial part of their net worth tied up in their businesses. If you fall in this majority, your future depends on getting the highest price when you sell that business.

Over the years, we have seen consistent patterns that have caused business owners to get less than they should have for their businesses. We don?t want you to make the same mistakes.

Here are 10 proven ways that business owners like you get less than they should have when they sold their businesses.

1. Do Not Plan for the Sale. Being in a hurry to sell will reduce your sale price more than anything else. Chances are pretty slim that you will get what you deserve if you hold a ?fire sale.? Planning for the sale should begin a minimum of one year and preferably three years before you want or need to sell.

2. Negotiate with One Buyer. The second most expensive mistake you can make is to negotiate with only one buyer. We often see this when a business owner receives an unsolicited bid from a competitor. Regardless of the reason, if you have only one prospective buyer determining the value of your business, you can be absolutely certain that you are going to get an offer well below true market value. Why? Because without other prospective buyers, that single buyer is in the driver?s seat. You want to sell and they are the only game in town. Why would they offer you a fair price? They won?t.

3. Surprise Your Buyer. There should be no surprises after you accept an offer. If your business has any negatives (i.e., you just lost you primary supplier) put them on the table early in the process. Waiting until your receive an offer and your buyer starts its due diligence will leave your buyer wondering what other issues might be lurking. The buyer will likely reduce the purchase price or, worse yet, withdraw the offer altogether. Putting issues on the table early gives you time to properly manage those issues and offset them with positive business developments.

4. Quit Focusing on Your Business. One of the most expensive mistakes sellers make is taking their eye off the ball during the business sale process. Many business owners get so wrapped up in selling their business that they do not continue to run the business as they had in the past, This often cause sales, margins, and key aspects of the business to drop off. Buyers like increasing trends. Downward trends in the months before the sale closes will likely cause a buyer to pay less.

5. Don?t Broaden Your Customer Base. Buyers of businesses are nervous about businesses where a high percentage of business comes from a handful of customers. Nervous buyers mean a lower sale price. Why? Because a component of the price the buyer will offer will be cash flow. If the buyer is nervous that a sizeable customer may not continue to purchase from your business after the sale, the buyer lowers its cash flow projections. When the buyer reduces the cash flow projections, the buyer offers you a lower price. The lesson: Do everything you can to broaden your customer base. Ideally, no single customer should contribute to more than 10% of your revenues or profits. If it is not feasible to broaden your customer base, try to get your customers to commit to assignable, long-term contracts to assure prospective buyers of continuing cash flow.

6. Be the Business. Buyers acquire business with the expectation that the business will be fully functional and growing after the sale. It is tough for a buyer to place a high value on your business if you are the sole decision maker in the company and the business depends largely on your skills and customer and supplier contacts. Developing your management, administrative and sales staff so that they can successfully run and grow the business when you are gone will pay big dividends when it is time to sell.

7. Keep Poor Financial Records and Data. Poor bookkeeping and the inability to pull detailed financial data (i.e., sales by product line, gross margins by product line, etc.) is a red flag for buyers. They see risk and risk means a buyer will offer you a lower purchase price. Having clean financials capable of easily producing detailed information about the business will build buyer confidence in your business.

8. Run Your Business on a Handshake. Having poor legal records and having contracts without teeth is a sign of weakness. How well is your intellectual property protected? Are all your independent contractor agreements signed and readily available? Do your sales people and key management personnel have non-compete agreements? Can your suppliers stop servicing you at the drop of the hat? Can your customers drop your line at their whim and fancy? It is best to handle many of these issues before you decide to sell your business.

9. Let the World Know You are Selling. Face it ? your industry is competitive and your competitors will do anything to take your business from you. In the context of sale discussions, your competitors may use the fact that you want to sell your business to their advantage. Customers and employees who know that you are trying to sell your business may be concerned and leave you. Loss of a key employee or a key customer can be significantly reduce the value of your business.

10. Represent Yourself. Abraham Lincoln once said: ?He who represents himself has a fool for a client.? Although it may sound a little harsh, the same holds true for the seller of a business. Business buyers are sophisticated and have experienced teams of advisors, lawyers, CPA?s and industry experts. It can be very expensive to go up against this experience without experience on your side. An experienced Mergers & Acquistions team will go toe toe to toe with these experienced buyers and their advisors anticipating their negotiating tactics. Without an experienced team on your side ? well, lets just say that President Lincoln was a very smart man.

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