12 Fatal Mistakes You Can Make When Selling Your Business
Many factors come into play that affect the selling of a business. Though every business is unique, whether in manufacturing, service, distribution or retail, each shares the same opportunities and the same problems that must be evaluated carefully when selling it.
As one of the most successful business M&A advisories in the mid-market medical industry, Paragon Ventures believes that outsourcing expertise in the selling of a business is a wise investment.
Many entrepreneurs build a successful business through vision, excellent management skills and sheer hard work. But most do not have a thorough understanding of the complexities and factors that are present in the deal structuring and business selling process.
Factors, such as:
- Maintaining confidentiality.
- Receiving the highest value for your business.
- Knowing how to project the company’s future.
- Maximizing its potential.
- Transaction deal structuring.
This document presents 12 of the most vital concerns that will have a direct effect on the selling of your business. The omission or even wrong interpretation of just one can greatly affect the value of the business or future success of the potential sale. Some of these must be implemented immediately, such as maintaining the confidentiality of the future sale, while others can be addressed during the selling process. You will find these 12 suggestions highly informative.
These are guidelines you will need to know when selling your business to achieve a faster transaction and the best possible price.
1) Lack of deal structure expertise
When the seller has limited knowledge about the available alternatives for structuring the deal, he is at a definite disadvantage! And probably a costly one. Items such as leverage buy-outs, leases, royalties, earn-outs, consulting agreements, non-compete contracts can add immeasurable value and security to both buyer and seller alike.
2) Failure to adjust the net owner benefit
If you are to determine a proper value, the balance sheet and income statements must be recast. Items such as owner’s salary, depreciation, interest and fringe benefits may be added or subtracted depending on the circumstances. The adjusted income statement will reflect the actual owner benefit in order to help determine the market value.
3) Failure to maintain confidentiality
Confidentiality is vital to the selling of a business. If employees know that you are selling and changes are coming, they may seek other opportunities. Competitors may use this information as a selling tool. Vendors may not continue to extend favorable terms. Profitability and market value may be reduced.
4) Failure to secure qualified buyers
Knowing how to qualify a buyer is critical. Paragon Ventures pre-qualifies each buyer to avoid a negotiation that is doomed to fail. This saves you time and money. It can eliminate hundreds of wasted hours and misdirected efforts.
5) Failure to continue to run your business
It is important to maintain your business at peak operating capacity. The performance and productivity of your business is what you are really selling. The time taken from your business to sell it will have a toll on the business and as a direct result lower its market value.
6) Failure to properly adjust for economic conditions and owner’s ability
Generally speaking, the higher the skill level required to operate the business, the more difficult it will be to sell it. The value tends to increase when the owner can be replaced easily. The value also may increase when an industry is in a growth stage. For many industries there are specific valuation methods that are highly subject to the owner’s duties in the company as well as outside economic conditions.
7) Failure to provide credible information
A potential buyer will want information about your customer base, competition, financial history and industry characteristics, such as size, growth potential and areas of opportunity. This information must be provided in a salable format and in a way to ensure your confidentiality.
8) Poor negotiating techniques
In many deals, poor negotiating techniques can cost the seller considerably in terms of selling price, terms and other opportunities. Many times a deal will fail to close because of poor negotiation or communication between parties.
9) Failure to place the proper value on your business
A business has value to a buyer because of its anticipated earnings from its established resources and a demonstrated successful track record. Proper evaluation is crucial, enhancing the chances of selling your business.
10) Failure to consider alternative investments
All buyers have alternative investment options. To make your business attractive, you must show a return on investment greater than stocks, bonds, real estate or other similar business opportunities. You should be prepared to offer seller financing.
11) Failure to prepare for proper due diligence
Due diligence issues are very important to the selling process. These issues can have a major impact on the closing of a business sale. It is imperative to be prepared and organized. You must be able to defend and substantiate representations made during the selling process.
12) Failure to seek professional assistance and consultation
There are legal, financial. marketing and other vital considerations that must be addressed in the selling process. Many decisions in the selling process should not be made without the advice of the right professionals. A wrong decision could lead to a fatal mistake!
These are just 12 areas of concern. There are many more just as important, depending on your particular situation.
Some of these are:
- How to sell when partners disagree.
- How to sell when a company is marginal or close to bankruptcy.
- What to do if the buyer wants you to continue managing the company.
- How to compile the necessary paperwork to finalize the sale.
You simply cannot afford to sell your business without the necessary skills and selling expertise. You run the risk of not getting the full value for your business. Worst yet, you may turn off legitimate buyers who may have purchased had your business been properly packaged and represented.
Almost all business owners who sell on their own do not receive the full value for their businesses!
At Paragon Ventures , we have one objective — to get you the most for your business.
We believe in results. Now you must take the next step!
By now we hope you are aware of the potential economic gain and the possibility of fatal errors when selling your business. Our main objective is to ensure that every client receives the maximum value for his or her business. That is our purpose.
Since 1994, Paragon Ventures has sold over 200 businesses worth hundreds of millions of dollars… some just like yours. Unlike other brokerages, you get 100% directed expertise in selling your type of healthcare or medical business. No distractions!
We specialize in virtually every type of business in the healthcare/medical market segments. Chances are that we have an expert on board, experienced in the sale of your type of healthcare business and with the contacts to successfully consummate the sale. This works in your favor because we are familiar with the hurdles and challenges associated with the marketing of your business.
Our vast network and aggressive marketing efforts ensure your business will be confidentially introduced to qualified buyers throughout the world!
Paragon Ventures will also provide you with a well-researched business evaluation, addressing crucial areas of concern that must be dealt with when selling your business.