Myrick CPA | Tips and Tools for Managing Personal and Small Business Finances

Selling a Business? Six Common Mistakes for Entrepreneurs to Avoid

Written by Charles P Myrick CPA | 10/27/14 12:30 PM



 

If you are an entrepreneur, at some time in your career you have probably thought about selling your business. You may be thinking ahead to retirement or want to pursue other activities. Many entrepreneurs underestimate the effort it takes to obtain a satisfactory outcome. If you're contemplating selling, here are some other common mistakes to avoid:

1. Overestimating the value of your current business.
Stick to the present. The fair market value of the current business will determine the price. Neither your vision for its future nor its history of growth is of interest to buyers.

2. Failure to use independent appraisals to determine your sale price.
You probably are sure of the value of your business. Still, it’s a good idea to solicit at least two appraisals from other professionals familiar with your industry. Appraisals that contradict your estimation will provide a sensible reality check. If they’re supportive, you can turn them into a helpful sales tool.

3. Overlooking the specialized nature and make-up of your business.
A combination of variables determines the value of most businesses. For example, equipment, real estate, and intellectual property are assets whose value should be determined separately before your factor them into the overall price. The skills and experience of managers and employees will contribute to the value of a service or professional firm. The retention of key individuals may influence the price.

4. Trying to negotiate the sale yourself.
Owners, eager to sell, are often too personally invested to negotiate sales of their businesses. A broker familiar with your business can impartially emphasize the attractive characteristics and value of the enterprise.

5. Failure to communicate a transition plan to all stakeholders.
You should notify your customers, employees and managers in advance about the changes. It’s an honorable way to manage the changes ahead. Communication about the transition will allay their concerns and will serve your own best interests. Furthermore, it will avoid conflicts, reduced revenue for the buyer, withheld sale payments, and litigation.

6. Reluctance to help finance the sale.
Without your help in financing, the sale is dependent on the buyer's cash reserve and ability to obtain outside financing. The result might be fewer potential buyers or even reduced sale proceeds. On the other hand, financing too much of the sales price might increase the risk of default.

At Myrick CPA, we know that selling your business can be a complex process. We provide expert financial services for businesses and will customize a sales plan that meets your needs, If you're considering selling, call us for an appointment.