The typical business owner will only sell a business once. Understanding the complex process involved will help produce the best results. But don’t fall prey to the myths that can derail or seriously affect a potential sale.
Selling a business is a major decision and a process that is rife with potential pitfalls. There are many misconceptions about selling your business that can derail the process. Below, we list the key myths to disregard when selling your company and offer practical advice, like when to sell a business, how to evaluate its value, and more.
Myth #1 – I Can Sell It Myself
Many owners believe they’re qualified to sell their business without professional assistance. Many owners are entrepreneurs and the key salesperson for the company. After all, it’s their company, and they know it best, so who better to handle the sale? But selling a business is not like selling a product or service.
There are many problems that can arise from an owner attempting to sell their enterprise on their own. For one, if you’re looking to sell on your own, confidentiality is lost. If the word gets out of a potential sale, there are definite risks of losing clients, employees, and favorable credit terms.
Also, consider whether you have the time necessary for selling a business and how to do so effectively. Owning and operating a company is a full-time job. Do you have the time to do all the legwork and research to find buyers, vet them, and negotiate while also running the business? Consider what’s a more valuable use of your time, conducting a complicated sale or focusing on your business and letting an expert handle the sale.
Myth #2 – I’ll Sell When I’m Ready
Another common misconception is about when to sell a business. Certainly, an owner wants to be sure he or she is mentally and emotionally ready to sell. But personal readiness is just one factor. Economic factors can have a significant impact on the sale of a business.
Industry consolidation, interest rates, unemployment, and many other economic measures can dramatically affect the sale price of your business, and all these factors are outside your control. One way to get around this and strike while the iron is hot is to enlist the support of a business broker. Business brokers provide acute knowledge of what the markets are like currently and can offer reasonable expectations for the future. If you want to sell when your business’s value is at its peak, talk with a professional and aim to sell when your personal goals and market conditions align.
Myth #3 – I Know What it is Worth
The first important question to ask when selling a business is what is your company worth? Some owners will base the company’s value on what they need for retirement, while others will tell you they want $100,000/year for “sweat equity.” Still others utilize industry multiples.
A third-party valuation is a good idea for anyone seriously considering the sale of their business. An outside valuation will include a thorough analysis of the business and the market it operates in. This will provide a solid understanding of the company’s growth potential based on an objective evaluation, not some vague industry average.
Myth #4 – It’s Like Selling a House
Another thing to consider when selling a business is the complexity of the transaction. A common myth is that it’s like selling a home, but this could not be further from the truth. Preparing to sell your house may take a few weeks, then you want to get the word out to everyone that the house is on the market. Once you get a satisfactory offer, you sign on the dotted line, turn over the keys, and move on.
Selling a business is much more complex. A successful business sale usually requires a great deal of pre-planning. Business owners may require one to three years to drive sales, develop key staff, document the operations and control expenses.
The average house will sell in less than four months, while the average business sale is nine months to a year. Even after the business is sold, the seller can expect to put in at least a few months, and possibly years of transition time, helping to make the new owner a success. When you consider how much brokers charge to sell a business, you’ll recognize that their fee is a fraction of the value they can provide to owners over a partnership that lasts years and results in a satisfactory sale.
Sound sale strategies will bring you the optimum price the market will bear. Go to the market with realistic expectations by getting a professional valuation and using a professional business broker or intermediary.
