Below are 3 aspects to consider and avoid when selling a business.
1) Advertising Too Early
While there are many reasons to start advertising a business as soon as possible (especially to take advantage of the high buyer activity seasons like at the first of the year), we constantly see businesses advertised too soon. When a buyer inquiries but financials are not in order and other key aspects of the business are still not available, this can really turn off well qualified buyers who are seriously looking for a business. This is often not the fault of the seller but is the responsibility of the firm who represents the seller. These firms simply do not take the time to understand and check their client’s financials and other aspects of the business before going to market. While the time it takes to prepare a business to sell varies, 3-4 weeks is normal and helps ensure that both the seller and business are ready to start engaging with buyers.
2) Setting the Asking Price Too High
This is one of biggest issues we see repeatedly with owners who are set on a specific price that is simply not affordable for most buyers. By having a business properly priced, the seller is given the opportunity to talk with many different buyers and determine which is best for their business. If the asking price is too high or requires that the buyer only pays cash because a lender will not provide financing, the seller severely limits their options and misses out on the opportunities to even have the conversation with qualified buyers who may have been a good fit for their business.
3) Ignoring Current Market Trends
Ultimately, the market determines the price for a privately held business. However, like many investments, the price of a business can easily go up and down based on current trends. To successfully sell a business, it’s important that these trends are realized and accounted for often in the marketing package. Should the price be higher if the trends are going up? If you agree, then shouldn’t the price go down if the trends are reversed? Unfortunately, many sellers hold on too long to their initial asking price when trends are clearly going in the other direction. To try to explain to a buyer that “business will eventually catch back up” does not work unless you can clearly document and show these trends.
While tempting at times, we often remind our clients to not take shortcuts and stick to the process which shows up in dividends and peace of mind at the closing table. The majority of our business comes from referrals, and we look forward to hearing from you soon.
Robert W. Amerine
Certified Business Intermediary (CBI)