By Jeffrey D. Jones, ASA, CBA, CBI
When selling a business, there are several mistakes sellers often make. The following are the 10 things sellers of businesses should never do:
- They should never stop doing the things that make the business prosper and grow such as the reduction of advertising and marketing campaigns, hiring quality employees, and upgrading equipment as necessary. Not doing these things will usually result in reduced sales and profitability.
- They should never make the decision to sell the business when they are not sure they are ready to sell. This generally results in the business being overpriced and a lot of time wasted dealing with buyer prospects that will never make an acceptable offer.
- They should never expect a buyer to make changes to the business operations that you, as the seller, are not willing to do now such as replacing high paid employees with less expensive employees, increasing advertising, reducing the size of the facilities, expanding into areas where you are not presently doing business, and/or expanding product/service lines. Buyers do not like change and should not make changes to the business operations until they are fully versed in the business.
- They should never allow buyer prospects to come to the business without the broker to tour the business and ask questions. The business broker should always be present during the meetings between the seller and buyer to control and direct the conversation and assist in obtaining any information needed by the parties.
- They should never discuss price and terms of sale with a buyer prospect. Let the business broker handle this on your behalf. The broker will require all offers be made in writing.
- They should never expect a buyer to pay for goodwill when the earnings do not support it. Every business has elements of goodwill such as experienced employees, existing customers, operating equipment, and a facility; however, unless these elements generate a profit in excess of a reasonable return on the tangible assets, then there is no return on the intangible assets (goodwill value).
- They should never expect all cash for your business. With seller financing, a buyer should pay 25 percent to 40 percent down with the seller financing the balance usually over three to five years. Even when the buyer obtains bank financing for the business, it is common for the bank to require that the seller carry at least a small portion of the sales price. This makes the buyer and bank feel comfortable that the seller has confidence in the business going forward.
- They should never expect a sale to happen fast. It typically takes four to eight months to sell a business. How fast a business sells is highly dependent on profitability, the price and terms of sale, the location, and the type of business.
- Following the initial interview with a buyer prospect, the seller should never state that they can call them if they have any further questions. Allow all buyer prospects questions to come through the business broker. This will save you a lot of time and help insure confidentiality.
- They should never refuse to make a counter offer in writing. The business broker will require buyer prospects to put their offers in writing and submit an earnest money check. In the event the offer is not acceptable, the seller should respond in writing as well to avoid any misunderstanding and/or lose an opportunity to finalize a transaction.
Jeff Jones is the President of Certified Appraisers, Inc. and Advanced Business Brokers, Inc. located at 10500 Northwest Freeway, Suite 200, Houston, TX 77092. He can be contacted by phone at 713-680-3290 or by email at [email protected].