Common Mistakes when Selling a Business
Selling a business can be a big undertaking, but if done right, one that can be very rewarding. There are many things you can do along the way to avoid common mistakes when selling a business. Below we address these and how you can perform adequate due diligence to avoid these mistakes.
Peak Business Valuation, business appraiser, is here to help you confidently and successfully sell a business. We work with dozens of individuals each week who are selling a business. Our main focus is providing business appraisals for selling a business or buying a business.
In addition to business appraisals for buy/sell agreements, we can also help you find an SBA lender if you are looking to finance a business purchase. Or provide an SBA business valuation for an SBA lender of your choice. We are happy to help! We love working with individuals who are looking to buy a business or sell a business! Questions are always welcome! Reach out by scheduling a free consultation!
Common Mistakes when Selling a Business
Below we address some of the common mistakes when selling a business to avoid. Through preparation and adequate due diligence, you can be confident your business is ready to sell and you aren’t leaving money on the table. Many businesses either don’t sell or sell for less than they could because of a lack of preparation. Knowing the following can help you prepare to sell your business and maximize the value of your business prior to selling.
1. Lack of Preparation
Whether you plan on selling your business tomorrow or in ten years, now is the time to prepare. There are many steps you can take to increase the sellability of your business. The more sellable a business is the more valuable it can become. Below we address just a few of the ways you can prepare to sell your business.
Build a Quality Team
Building a quality team is one of the best things you can do to increase the value of a business. Having knowledgeable employees in place and a management team can enable you to do a few things. One – if you are looking to step down from running the day-to-day operations but want to continue receiving an income, building a management team can help you do this. For some business owners, this is a good place to start. For others who are ready to leave their business, building the right team will make it easily transferable to a new business owner. The easier it is to transfer your business to a new owner the more valuable it becomes.
Reduce Owner Dependence
Next, if you went on vacation for several months, would your business be able to continue operating as normal without you? What part of your business is the bottleneck?
In many small businesses, the owner is either the business or a key player. There are many strategies to reduce owner dependence. Building a quality team is just one of the ways you can reduce the dependence your business has on you as the owner. Another strategy is to build out processes and checklists for every part of the business process. The less you are involved in the day-to-day operations of the business the more valuable it can become. For more information read Reducing Owner Dependence.
Document, Document, Document
Next, processes and systems should never be just in your head. Documenting a system for every process will help your team and the potential buyer know how to keep things running smoothly. The more systematized your business is the faster a new owner can get up to speed. It makes the transfer from one owner to the next more seamless. Be sure to not only outline how they work, but why they work. Through proper documentation, your management team will have key information available to assist in decision-making.
2. Neglecting Financial Documentation
One of the biggest mistakes we see business owners who are looking to sell their business make is neglecting financial documents. Financial statements are the key to telling the story of your business. Any business buyer will want to review the financial statements prior to making an offer to buy a business. This is an important part of the due diligence process.
A business appraiser will also analyze the financial statements of the business when performing a business appraisal for selling a business. Understating or overstating expenses, underpaying taxes, and mixing personal and business expenses are just a few of the common mistakes business owners should avoid.
Messy financial statements make it difficult for a business appraiser to value the business and a business buyer to feel confident knowing what they are buying. Paying a bookkeeper and tax accountant is well worth the investment when it comes time to value your business and sell your business.
3. Not Understanding the Value of Your Business
When you decide you are ready to sell your business one of the important aspects to know is how much it is worth. A business valuation for selling a business can help you understand the fair market value of a business. The fair market value is what a willing buyer and willing seller are willing to transact at.
Knowing this information can help you determine a fair listing price. Many businesses never sell because the listing price is too high it scares away potential business buyers. On the other hand, under-listing your business could cause you to leave money on the table. Obtaining a business valuation when selling your business helps you understand the value and what drives the value. A business appraisal identifies the fair market value of the business. In addition, it analyzes the strengths and weaknesses of the business compared to competitors.
In addition, a business appraisal is a useful tool for negotiating the purchase price with potential buyers. If you understand what your business is worth and why it is worth it, it is significantly easier to negotiate the price in your favor. Peak Business Valuation, business appraiser, is happy to provide you with a business valuation for selling a business. Schedule a free consultation today!
4. Avoiding Taxes and Overstating Expenses
This is a big one! For most business owners’ taxes amount to a large amount of revenue. As such, many business owners want to reduce their tax burden as much as possible. However, it may not be in your best interest and in some cases may even be illegal or untruthful. Many tax strategies have short-term benefits but backfire when you are looking to sell your business or obtain financing. These strategies seek to minimize business revenue. Doing so ultimately increases risk and decreases the value of the company.
As such, finding a quality tax accountant who works within tax laws is in your best interest. An experienced accountant can also help you take advantage of tax benefits and strategies that won’t decrease company value in the long run. If you are using tax strategies that are unlawful – a business appraiser at Peak Business Valuation says you can’t take your cake now and expect it later too.
When a business appraiser analyzes financial statements, they will assess many aspects including taxes. In addition, they analyze expenses the owner/business is incurring. Common adjustments to a business valuation include the following:
- A fair owner’s compensation – this can increase or decrease the value of the business
- Any personal expenses the business owner is running through the business
- Non-recurring or non-related business expenses
- Other expenses: for instance, a business might have a family member or other individual on the payroll who doesn’t operate or contribute to the business
The above will all impact the value of a business and how much a willing buyer is willing to pay for the business. If you are looking to connect with a quality tax accountant, please reach out. We would be happy to connect you with tax accountants that we feel perform their work with integrity. Schedule a consultation with Peak Business Valuation, business appraiser, to learn more.
Selling a business takes time, energy, and preparation. But it is absolutely worth it! Avoiding these common mistakes when selling a business can help the process go much smoother. Whether you plan on selling a business now, or in 5 years, start preparing today. The payoff will be well worth it as the value of your business increases. Peak is here to fuel your success!
As a business appraiser, Peak Business Valuation works with several individuals each week who are selling a business. We are happy to answer any questions you have and provide a business appraisal for selling a business. Get started today by scheduling a free consultation below!
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