Common Misconceptions about Selling a Business

February 23, 2013

If you are a business owner contemplating a sale somewhere in your future, consider these common misconceptions about selling your business.

1. I know the buyer - they are in my industry. Many business owners think they already know the prospective buyer – typically someone from their industry: a vendor, supplier or even a competitor. However, it’s not a given that they will buy on your timeline or even offer you a fair value. There are risks associated with pursuing a buyer in your industry: you’ll need to share proprietary company information and you risk a breach of confidentiality that could spread among your network. Generally, it’s better to market your business as broadly as possible; outside buyers may offer a higher value and at the least may give you a better negotiating position with an industry buyer.
2. The market is doing better—I’ll just wait one more year for things to improve more. Procrastination can cost you. Sellers in 1999 or 2007 will tell you that they wished they had sold while the market was hot.  As in the stock market, trying to time the peak of the market to sell your business will usually result in you waiting too long.
3. Things are going well and I still enjoy my business. You want to sell when your business is healthy and when you don't have to sell. Life can take cruel twists and turns. Business owners without a plan can find themselves subject to the "Dismal D's" - Death, Disability, Divorce, Dissenting Owners, Declining market, Debt overload, or just pure burnout. It is hard work to sell your business. You'll need plenty of energy and motivation to maintain performance during the sales process.
4. My broker will create value when I decide to sell. No they won't - that's not their job! A good business broker can help you yield value, attract a broader market of potential buyers and get a deal closed, but they can’t make your business worth more than it’s economic and market value.
5. My lawyer or CPA  will help me find a buyer. Finding a buyer for your business is very different than offering legal or financial advice and services. Business brokers do this every day. Most professionals understand what they do well....and what they don't. Find the right tool for the job!
6. It only takes 6-12 months to exit a business.  Nothing could be further from the truth. In order to identify the buyer and do the transaction can take 1 to 2 years. If you are still a few years away from retiring or selling than now is the time to start the process.
7. My business is on the market so it’s time to think about retiring. The biggest mistake business owners can make is to allow business performance to slip during a sales process. The primary reason for deals to either fall apart - or become heavily discounted - is because of deterioration of revenue and earnings. You should run your business like you’ll own it forever—better yet make one last push to grow revenues and profitability.
8. I know a great Real Estate Agent, I'll list my business with them. Selling a business is a very different process than selling real estate--use a business broker, not a real estate agent that "dabbles' in selling businesses.  Real estate agents don't need to deal with goodwill and intangible components of value--those could be a key part of the value of the business and need to be negotiated carefully.  More importantly, you'll want your business to be marketed while maintaining confidentiality.  Most business owners don't want a "FOR SALE" sign on the side of their business or a picture of their storefront in the MLS.
9. Business Brokers are all the same so I'll just choose the one with the lowest commission. Would you go into a important legal battle with a cut rate lawyer or enter an IRS audit with the cheapest accountant?  When it comes to professional services you probably get what you pay for.  The reality is that a good business broker will negotiate better terms for you both in terms of total value and the tax structure of the deal. Selling your business may be a key component in your retirement or next phase of your life so you should find a  business broker that understands your business, has a track record of success and can get your business to a closing.