Selling a business is something that most business owners will only attempt once in their career. With an estimated 70% – 90% of their total net worth tied up in their business, they can’t afford to make a costly mistake, but their success in running their own business generally doesn’t prepare them to handle one of the largest and most crucial financial transaction in their life.
This is the first in a series of articles exploring some of the common pitfalls in selling a business.
Major Pitfall No. 1 — Not Allowing Sufficient Time
Many sellers put off planning for the sale of their business until close to the time they want to retire/leave. Given the complexities involved, and the frequent need to continue working in the business for a time after the sale to insure a smooth transition, the time to start planning is typically 2-3 years in advance of the proposed sale, to get the best possible price & terms for the business.
During that time business operations can be tweaked to build up value and financial records can be put in order, not only to be accurate and up-to-date, but also to present the business in its best light. These steps will not only increase the value of the business, but will identify/remedy any potential problems that would otherwise be discovered in due diligence and potentially kill the sale or significantly reduce the purchase price & terms.
Another problem with not allowing sufficient time is that it puts the seller in a poor negotiating position. Waiting until health or other issues force the sale of a business inevitably lessens the amount of time the seller can wait for the right buyer and the right deal. Generally speaking, the less time the seller can afford to stay in the business, the more negotiating power the buyer will have over price & terms.
If you know of a business owner who’s thinking of selling or buying a business and who might benefit from a complimentary consultation with us, have them contact me in strictest confidence at email@example.com
By: Mike Ertel, Transworld M&A Advisors