Three Of The Worst Mistakes When Selling A Business
It is commonly understood by owners of small and mid-sized companies that when they
put the business on the market, they need to follow basic practices, such as pulling together financial information for review by the buyer, and making sure the business will come with a good premises lease. And while doing some things right, owners often make serious mistakes that impact their ability to conclude a deal. Here are three of the worst mistakes made by entrepreneurs selling a business.
1. Being difficult to contact: It is not true, as some sellers believe, that buyers remain motivated and cooperative if they have to find owners and chase them down to get information and responses to their offers. In fact, with all of the business opportunities on the market, any buyer having trouble communicating with a seller will simply go on to other opportunities available.
Playing hard to get might be an effective way to attract the interest of another student in high school, but that tactic doesnt belong in a business search in the 21st Century. The most successful sellers make sure to provide at least two phone numbers--home and mobile--to prospective buyers and various brokers, along with the assurance that they are available 24/7.
2. Playing the open listing game: Some business brokers, anxious to get listings, will get the sellers agreement that the broker will earn a commission by bringing the buyer who purchases the business. But only then. And under this open listing, the seller is free to find his or her own buyer without responsibility to the broker, and can even list with other brokers on a non-exclusive basis.
From the standpoint of someone selling a business, the idea of having several brokers, all on open listings, might seem like a great strategy to expand the marketing effort. But the seller has little control over how the business is offered for sale, which can readily compromise the need for confidentiality. Besides, most brokers are not motivated to put time or advertising investment into promoting non-exclusive listings.
It might seem like a clever idea, but the seller who engages brokers with open listings, is more likely to encounter misunderstandings and problems than to achieve a successful sale.
3. Pricing based on unreported income: The seller with a secret--that some of the money coming into the business goes directly to pocket, never getting recorded on the books--should take care to keep that secret. Its a mistake to reveal it to prospective buyers, with the explanation that the asking price may seem too high, but that its based on actual profits--including the unreported income, which total more than the figure shown on the income statement.
After demonstrating this lack of honesty, a seller will find that his or her other statements about the business are not readily accepted by prospective buyers. And anyone who destroys his or her own credibility when selling a business is very unlikely to find someone willing to make a deal.
If actual income is used as the basis for determining asking price for a business, that income should be apparent to someone examining the companys books. All of it.
By getting fully ready with the necessary documents and commitments when offering a small or mid-sized business for sale, the owner increases the chances of finding the right buyer and completing a transaction. Its a shame to undo that effective preparation by making major mistakes such as the three mentioned here.
by: Peter Siegel, MBA
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