We've debunked the misunderstandings that leave so many sellers woefully unprepared when they put their business on the market. When you've never done it before, selling a business can seem a daunting prospect. Though it's not like selling property or an automobile, one principle nevertheless remains the same: if you want a good selling experience, you must take time to understand what the market expects and appreciate what it can, and cannot, deliver. In many cases, there's nothing wrong with a business that's not selling; it's just that the seller has failed to prepare for a sale. Let's take a look at five common myths that help explain why businesses don't sell — usually to the great surprise of proprietors.
1. My business is sale-ready
Too often business sellers assume that as long as their business is performing well, then it's ready to sell, with no preparation needed. Not true — certainly not if you want to maximise your selling price. Business brokers will generally tell you that getting a business in prime condition to sell could take some time. The sale process involves a rigorous examination of your business and its track record. That means your trading? (did you mean sales) history, other financial records and many other commercial indicators will be under scrutiny. Potential investors will also want to see that the business has a future without you — which means marketing strategies delivering results, a full sales pipeline and a motivated, skilled workforce enduring well after your departure. And you may need a professional valuation in place to justify your asking price. Maximising your sale price means being as profitable as possible, cutting unnecessary costs and being able to demonstrate potential for future growth.
2. My business will sell quickly
Yes, that's possible, but according to business brokers, the majority of small businesses generally take somewhere between six and 10 months to sell. Not only must your business measure up well against what the buyer is seeking, but as a responsible owner, you may also want to be sure that your business and its employees remain in safe hands. Furthermore, a host of external economic factors, such as interest rates or a downturn in your sector or the wider economy, could hasten or delay the conclusion of a deal. Beyond your control, these factors may influence when you decide to put the business on the market and how you structure the deal. For example, in a recessionary economy it may be wise to offer owner financing, which means accepting a portion of the price in installments. In a boom economy, it may be wise to invest in capacity building investments to show the buyer possible growth plans.
3. I'm sure to get my asking price
For all the formulae used to semi-scientifically calculate a business valuation, a business is ultimately worth what someone is willing to pay for it. Your asking price and the price you actually agree with a buyer are therefore rarely the same. Before you list your business for sale, your broker will explain that any advertised selling price will be regarded by potential buyers as a starting point for negotiations. In most instances, sellers can expect to realise a sales figure under the original list price. More alarmingly, many advertised businesses never receive a viable offer — they cannot be sold at all. This is mostly due to the fact that the seller has unrealistic price and terms expectations. In other instances, the businesses in question are usually not in proper saleable condition — it may be because the enterprise is a 'one-man band', the lease is unassignable, profits are declining or customer concentration issues. A good business broker can help you understand these issues and help guide you in overcoming these deal killers.
4. The buyer will take care of financing
While it is clearly the buyer's ultimate responsibility to arrange financing, the reality is more nuanced. For instance, it will be in your interests as a seller to obtain financing pre-approval, which will make it much easier and quicker for your prospective purchaser to secure funding. Many businesses do not qualify for third-party financing for many reasons. Therefore it is common for the seller to accept the risk of financing a portion of the sale themselves. This not only reduces the amount the buyer has to borrow it also demonstrates your confidence in the business's prospects. This, in turn, burnishes your business's appeal in the eyes of would-be buyers, who may be willing to pay a higher price.
5. I'll get a higher price next year
This idea tends to be based on 'real-estate thinking', which surmises that prices will always move in only one direction. The reality of a business sale, however, is that a business valuation can go down as well as up, depending on a multitude of variables. Decisions on timing a sale really should be discussed with a business broker or other professional with experience in business sales. They will be better placed to take a considered view of your business and its prospects in the business sale marketplace.
By Melanie Luff, Online Journalist for BusinessesForSale.com, the market-leading directory of business opportunities from Dynamis. Melanie writes for all titles in the Dynamis Stable including PropertySales.com and FranchiseSales.com.