9 Common Mistakes to Avoid When Selling Your Business

Selling a privately-owned company can be a complex and challenging process. Below are nine mistakes that business owners should avoid to maximize their chances of a successful sale:

1. Lack of preparation: Failing to adequately prepare for an exit from your business is a common mistake. It's important to have accurate and up-to-date financial records, legal documents, and other relevant information ready for due diligence. Buyers will want to thoroughly assess the company before making an offer, so being well-prepared is crucial. The more time available before an exit may enable implementation of strategies to maximize after-tax proceeds to the owner.
2. Overvaluation: Overvaluing your company can lead to difficulties in finding a buyer and may extend the sales process. It's essential to set a realistic sales price based on market conditions, financial performance, industry trends, and the company's growth potential. Engaging professional valuation services or consulting with experienced advisors can help determine a fair and reasonable valuation. Consider obtaining a Quality of Earnings report or a Range of Value report to assist in arriving at a fair value for the business.
3. Lack of confidentiality: Maintaining confidentiality throughout the selling process is crucial. Prematurely disclosing the intention to sell can create uncertainty among employees, suppliers, customers, and competitors, which can negatively impact the business. Utilize non-disclosure agreements (NDAs), limit the number of individuals who are aware of a potential transaction, and exercise caution when sharing sensitive information. Consider employment agreements for key employees to ensure that they do not leave the company prematurely.
4. Insufficient marketing and exposure: Failing to effectively market the company can limit the pool of potential buyers and weaken negotiation leverage. Engaging a business broker or investment banker with experience in the industry can help generate interest, identify qualified buyers, and conduct a comprehensive marketing campaign.
5. Limited due diligence on buyers: Conducting due diligence on potential buyers is just as important as them conducting due diligence on your company. Ensure that you thoroughly vet interested buyers, including assessing their financial capabilities, experience, intentions for the company, and compatibility with your vision. Choosing the wrong buyer can lead to regret and detrimental outcomes.
6. Poor negotiation strategy: Inadequate negotiation skills or a lack of preparation can result in less favorable terms for the seller. It's essential to understand the negotiation process, have clear goals and priorities, and be willing to walk away if key terms are not satisfactory. The highest selling price that a seller will receive is in the letter of intent (LOI). After the LOI is executed, the owner’s ability to market the company to other potential buyers is eliminated. Savvy buyers or their agents will negotiate the ultimate selling price down from the LOI. Engaging experienced advisors or negotiation experts can be beneficial.
7. Neglecting post-sale obligations: Failing to consider post-sale obligations can lead to disputes or legal issues. It's important to address issues such as employee contracts, warranties, indemnification provisions, and any ongoing responsibilities that may arise after the sale. Consulting with legal and financial professionals can help ensure a smooth transition. Once again, addressing these matters directly in the LOI can minimize surprises.
8. Failing to understand the tax implications: Not properly considering the tax implications of the sale can result in unexpected financial burdens. Consult with tax experts to understand the tax consequences of the sale, including capital gains and state income taxes, and explore strategies to minimize tax liabilities and maximize after-tax proceeds.
9. Ignoring the emotional toll on the owner: The sale of a company, which the owner may have spent a significant part of his or her life developing, is personal and can lead to a series of different emotions. It’s important to understand that this is not uncommon and talking with others who may have gone through a similar experience can be rewarding and beneficial. Be prepared for life outside of the company.

Remember that each selling situation is unique, and it's crucial to consult with experienced professionals, including attorneys, accountants, and business advisors, to navigate the sale process effectively. If you have any questions or would like to discuss steps you can take to achieve a successful sale, please contact us.