The Biggest Mistakes a Seller Can Make

According to 2013 data compiled by Pepperdine University’s Graziadio School of Business and the International Business Brokers Association, the biggest mistakes that someone selling a business will make are: unrealistic price expectations (39%), poor financial records (14%), declining revenue (15%), and waiting too long to sell the business (14%).

It’s unsurprising that the most common mistake in selling a company is unrealistic expectations about its worth. Buyers are generally sophisticated, often having acquired multiple businesses, giving them insight into the market that sellers may lack, and which can make negotiations breakdown as expectations exceed what a buyer considers acceptable. This is where a highly qualified business valuator becomes invaluable. A valuation professional does a number of tasks to determine the most probable selling price of a company. First, they compose a valuation report that determines a fair value for a company, weighing and analyzing a number of qualitative and quantitative factors. It’s commonly said that a business is worth what a buyer will pay for it. However, a valuation report helps avoid the pitfalls of unrealistic price expectations, giving sellers and prospective buyers a shared understanding around which to conduct negotiations.

It should also come as no surprise that a company with poor financial records is often interpreted as unprepared for sale. A buyer needs and expects lots of information to complete a purchase. To avoid the problems associated with poor financial records, Greywood Partners prepares a Confidential Information Memorandum for every client. Simply put, this comprehensive document provide a complete picture of a company’s financial position and operations, giving qualified buyers the confidence they need to begin to negotiate and, in due course, buy the business.

This brings us to the third and fourth common mistakes that sellers make. Often, when a business owner waits too long to sell a company its performance is already evidently declining, or they’re obviously tired of running the business. Individually or together, these two factors can dramatically affect the sale of a business by revealing that a seller needs to keep short the duration of the sale process. In any scenario these mistakes can give a buyer important leverage, which can be used to deeply discount their purchase because, in a worst-case scenario, a seller would otherwise have to liquidate the company’s assets at a significant discount. Unexpected health problems can force an owner to sell their business, often for far less than what the business could have been sold for under more ideal circumstances. Owners who plan ahead and start the transition process early receive significantly higher after-tax sale proceeds, compared to business owners who are forced into a sale.

At Greywood Partners we aim to balance the needs and goals of our clients looking to sell their business with the quest to ensure the best return possible on a sale. Working closely with sellers on tax planning, revenue optimization and buyer specific potential restructuring, well before engaging in negotiations, we help a seller structure and present their company in a way that will achieve their best possible exit. Selling a business is far from a simple affair. Too often sellers make critical mistakes that can dramatically affect negotiations and the final worth of a company.

Should you have questions about selling your business or the exit process, please don’t hesitate to contact us.