Dealbreakers when Selling a Business
Selling a business is a several-step process. There are many things that need to happen prior to even listing your business for sale. In the following paragraphs, we will cover five dealbreakers for a potential buyer. To ensure you have a smooth and successful selling process, avoid these deal breakers at all costs.
One of the most important steps to avoid a difficult selling process is receiving a business valuation. Peak Business Valuation, business appraiser, helps sellers across the nation sell their businesses successfully. For more information on what a valuation is, please read What is a Business Valuation or Business Appraisal? Or reach out by scheduling a free consultation using the link below.
5 Dealbreakers When Selling a Business
Business is in Poor Selling Shape
One of the more obvious reasons someone does not buy a business is because it is not in sellable shape. Here are some of the problems unsellable businesses suffer from:
- High owner dependence – See Reducing Owner Dependence
- Weak/unorganized business operations
- A declining market area
- Small clientele pool
- Untrained staff
While you may not be able to eliminate every single problem with your business, you can focus on the biggest eyesores. Not only will this increase the value of your business, but will also be more attractive to buyers. A great way to improve these problems is to focus on your key value drivers. Value drivers are what drive your business. Before selling your business, ensure these value drivers are up to speed and at the forefront of the company’s business plan. Peak Business Valuation, is happy to discuss key value drivers for your business through a free consultation.
Weak/ Nonexistent Transition Plan
Creating a strong transition plan between the current owner to future management is critical. Buyers want to feel confident in this process as it is considered the “make or break it period”. Transition plans include operation and employee manuals, contracts with clients in place, a business plan, and employment agreements with key managers. One of the most important pieces to a transition plan is having the current owner remain involved while the new owner is getting their feet under them. This transition period can be difficult for many different reasons which is why it needs to be solidified and organized. For more information see Transitioning your Business to a New Owner.
When selling a business, strongly consider obtaining a business valuation. A business appraisal can help you understand the strengths and weaknesses of your business. A business valuation includes projections of the business in the coming years. This is a great tool for buyers when considering a business purchase. The business valuation gives clear and honest information on the financial status of the business. Peak Business Valuation, business appraiser, would love to be your valuation provider. Please reach out for a free consultation.
Setting Your Asking Price Too High
While your business may be worth the world to you, that worth does not translate to a viable selling price. Setting your asking price too high is the easiest way to push buyers in the opposite direction. The best way to avoid pricing your business too high is to obtain a business valuation. A third-party valuation company such as Peak Business Valuation will look at your company financials, tax returns, business plans, etc., and determine a fair asking price. A business valuation is useful for both seller and buyer when negotiating a fair purchase price. For more information see Determining a Listing Price.
Requiring an All-Cash Sale
While an all-cash sale sounds dreamy, it is unrealistic. Most buyers will be using some sort of financing, such as an SBA loan. Seller financing is also very common. Requiring an all-cash sale is not only unrealistic but sets you in a painfully high tax bracket. This actually reduces your overall income as you have to claim all of the money into a single taxable year. To avoid problems and scare potential buyers away, prepare to offer seller financing or deferred payments to a potential buyer. Being flexible with your preferred way to receive funds from the sale of your business is important. For more information read Structuring a Business Transaction.
Last, it is unrealistic to assume your business will see for the initial asking price. When selling or buying a business there can be a lot of back and forth during negotiations. An asking price is a starting point but not usually the end selling price. Many purchase prices end up around 80% of the asking price. Negotiating isn’t necessarily a bad thing, as long as it is done in fairness.
To avoid getting low-balled or stuck in a whirlwind of negotiations, consider receiving a business valuation from Peak Business Valuation. Our valuation professionals will analyze the numbers and figures of your business from a third-party perspective. This valuation will give you a fair market value and a better idea of what your business is worth to help avoid lowball offers. A business appraisal can also help you view your business from the perspective of a potential buyer. Knowing your business value and what drives it is important when negotiating the purchase price. For additional info, see Negotiating a Purchase Price.
In summary, selling a business can be overwhelming, especially if it is your first time. Taking the appropriate steps before listing your business will give your company the best chance of selling quickly and fairly. One of the first and most important things you can do as a business owner is to obtain a business valuation. Peak Business Valuation, business appraiser, helps sellers on the daily understand the value of their business before selling it. For specific information, please contact us. Schedule a free consultation using the link below. We look forward to working with you!
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