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3 mistakes that prevent businesses from selling

3 mistakes that prevent businesses from selling

Even the best businesses can struggle when it comes time to sell.  There are three common mistakes many business owners make that can prevent their business from selling.  Understanding and avoiding these mistakes will help make your business for sale transaction much more successful.

Underestimating how long it takes to sell a business

Many business owners assume that selling their business will take a few weeks or a few short months.  In actuality, selling a business can take months and sometimes years.  Without knowing how long the process can take, many owners wait too long to put their business up for sale and are inadequately prepared for the process.  This puts the business at risk for dissolution and the owners at risk of a very disappointing outcome.

One way to avoid this common mistake is to draft an exit strategy.  Ideally, exit planning should begin long before selling.  Without strategic planning, a business misses out on opportunities to improve and create a track record of success that will appeal to potential buyers.  Exit planning can help to identify and minimize weaknesses, further improve areas of strength, demonstrate growth potential, and show a positive cash flow history.

Assuming the “right buyer” will walk through the door

Business owners presume their successor will be similar to themselves in terms of background and business goals.  They are confident that the perfect person is just waiting to put in an offer when the business is listed for sale.

This is a very dangerous mindset.  It eliminates any sense of urgency to market the business creatively to a wide variety of potential buyers.

While the buyer may fit the owner’s ideal image, they may also be

  • A competitor looking to grow by acquisition,
  • A business that is expanding into new products or service offerings, or
  • Someone who wants to take the business in a new direction.

Finding and qualifying a buyer is one of the most labour intensive aspects of the business for sale purchase.  At the end of the day, the right buyer is the person who has liquid cash to invest in the business and can meet the other terms listed in the business for sale contract.

Misunderstanding the value of the business

Perhaps the most common and detrimental mistake business owners make is failing to understand the value of their business.  Accurately determining the fair market value of a business is one of the most misunderstood parts of the selling process.  Business owners often overestimate the value of things like goodwill, assets, niche markets, and potential.

Business owners are also guilty of pricing their business based on what they need or want to see as a return on their investment.  These considerations are meaningless to a potential buyer and will rarely align with how much a buyer is willing to pay.

Fair market value and the asking price are determined after analyzing several factors, including industry and local economic factors, and completing a specialized calculation.  Following an objective process highlights the true value of the business and makes it easy for potential buyers to understand how the asking price was determined.

Pricing a business accurately and objectively will help a business sell more quickly and close to the asking price.

There are three things every business owner needs to remember when they decide to sell their business.

  • It will take time and it is important to plan accordingly.
  • Owners need to be open-minded and remember the “right buyer” may not be who they imagined for their business.
  • In order to sell, the business must be priced based on fair market value.

Business owners that understand these aspects of the business for sale process will be more likely to have a successful sale with far less stress and disappointment.  If you are ready to sell your business, contact Acuity Business Group to learn more about how we can help.