7 Mistakes to Avoid When Selling Your Small Business

Selling your small business can be challenging because of the inexperience of selling an entity and having unrealistic expectations. Besides external challenges like unfavourable economic conditions, many internal errors lead to the loss of several dollars during a transaction. It can be disappointing and financially draining because the entrepreneur builds the entity from the ground up with a lot of hard work and effort.

Thus, whenever you plan to sell your business online, you must prepare in advance to avoid the mistakes that can make you lose money. It is recommended that you understand these issues before entering the negotiations round to ensure you get the desired return on investment. So, here is a list of common mistakes that sellers must avoid.

1. Moving Ahead Without Preparation

It is a standard error that most entrepreneurs make while putting up their businesses for sale. Planning is an integral part of any business activity, and selling it is no different. The preparation to sell your business must begin at least three to five years before the handover.

During this period, the business needs to be revamped and made profitable to get the best price in the market. No buyer will be interested in purchasing if the deal does not appear to be advantageous.

Thus, the financial records and statements should be updated, accurate and organised in chronological order. The business should not have any pending litigations, bad debts, credit history, or tax penalties that affect its goodwill, which is considered a significant intangible asset for business valuation. The seller must get rid of all the internal issues before listing the business.

2. Avoiding Correct Business Valuation

Most business owners are expecting to earn a whopping sum from the sale of their company, which makes them inflate the asking price. On the other hand, there are those who are unable to gauge the correct value of their intangible assets and settle for a lower price.

However, this is the wrong approach as the pricing decision cannot be whimsical or impulsive. You must do your market research and ask your accountant to do the valuation to get the accurate costing.

Do not let your emotions crawl into the pricing decision. It should be based on the valuation done by the professional and the market trends. The price should be reasonable so that it is able to attract buyers and should have a threshold mark for negotiations.

3. Misrepresentation of Facts

Falsification is a grave mistake that not only disrupts the sale but also leads to legal ramifications. Business owners, in their quest to get their company sold quickly, may resort to deception and fabrication, such as showcasing exaggerated profits and income. If the buyer finds out the truth during due diligence, you may be labelled as a fraudster and will not be able to sell the business.

Thus, the entrepreneur must explain the issues that may be hampering the growth of the business in a confidential manner. The lawyer must mention these problem areas in the contract that can affect the business in the future. It will keep you safeguarded if the buyer later alleges that he was misinformed about the status of the company.

4. Not Promoting the Sale

Many entrepreneurs are not aware that dozens of businesses are put up for sale every year. Thus, you need to promote the sale as much as possible to attract qualified leads. Also, you are the right person to do the job because you have been running the entity for a long time and have passionately built it with love and conviction.

You can perfectly sum up its strengths and present it in an appealing manner that describes its growth potential. A representative may not be able to present it the way you want it to be listed.

It is also possible that they may not have complete information about the business and create an incomplete listing that does not get any enquiries. So, make sure that you take charge of spreading the word around, writing the listing, informing the qualified leads about the strengths of the business, and answering their questions.

5. Selling in Haste

Selling your business is a long process and takes time, so you should not jump the gun when you get the first offer. You need to consider a few other options before preparing the sale contract. You do not want your business to end up with an amateur who will not be able to run it.

There will be nothing more disheartening than watching your venture fail. Thus, make an informed decision after conducting background research of the buyer and understanding his intentions from the purchase.

Also, do not fall into the trap of selling the business to a friend, relative or one of the board members because of your relationship. The person should be qualified to lead a company and have the funds to complete the transaction without any delay.

6. Not Paying Attention to Confidentiality

Signing the   before providing significant information about the business to the potential buyer is of utmost importance. Also, you do not want the word to spread through other sources and create panic among your employees. It can lead to mass resignations and strained relationships with suppliers and customers.

Thus, you must maintain complete secrecy about the selling plan until things start materialising. In many cases, the potential buyer may be a disguised competitor who wishes to find out the trade secrets. So, make sure that you vet the prospective buyers and make them sign the non-disclosure agreement.

7. Agreeing to Deferred Payment

The seller must not agree to any mode of payment other than upfront payment. Some buyers may ask for payment instalments for the next few months. However, this can prove damaging if the buyer is unable to run the business successfully and starts losing money.

In such a case, he will not be able to pay the instalments. Thus, it is a high-risk proposition to agree to such payment terms. Also, do not become a shareholder in the business during the negotiations to lower the final price. It can again prove risky if the business fails and you will have nothing but worthless shares. So, ask for upfront payment in full without any terms and conditions that are not acceptable.

 Conclusion

If you plan to exit your company, make sure that you sell your business online to reduce the hassle of advertising through various platforms. Get qualified leads and make an informed decision while completing the sale.