Posted on Jan 28th, 2022.

Every day, all a crossed America, small business owners unintentionally make one or more of the following mistakes, which in turn drastically reduces their business value and or likelihood of successfully selling and exiting from their business. A single mistake or misstep could cost you tens of thousands of dollars in valuation change. People don't usually have room in their retirement budget for those kinds of mistakes, of course, so planning ahead and being educated can go a long way. If you think there is a chance that one day you'll be looking to sell your business, here's what you need to know.

1. Pricing

Of all the things you could do that would negatively impact the sale of your business, choosing the wrong asking price is a big one. After all, you can't set the price tag too high, or you'll never get any leads. You also can't sell the business too cheap because you won't make a profit. Plus, if a business seems "too cheap," people often question what's wrong with it or if the owner even knows anything about the business.

One way to avoid this is to work with a business appraiser or financial professional to determine the value and net worth of your business, as well as comparable business sales in the region. Then, you will be able to have a better idea of where to set your asking price. Don't take it personally — just take the information to heart and make sure your pricing is on point.

2. Lack Of Planning

Planning is everything in business. Without a good plan, nothing will be successful. Long-term planning is critical to the success of any business sale. Succession planning is often overlooked because the former owner assumes the future success of the company is "not their problem." Unless you want to see your business disappear after you sell, it certainly is your problem. This is especially true given that a large percentage of transactions happen with some form of seller financing or owner earn-out.

Another aspect of poor planning is sloppy financials. This could be the single biggest and most costly mistake a small business owner can make. Underreporting revenue, hiding personal expenses in the business and lack of detailed financials are so common but so costly. Take the time to either learn how to handle the bookkeeping and accounting yourself or better yet, hire a professional to handle this for you.

Not only should you be reviewing accurate and up-to-date financials each month, but you will need accurate and up-to-date financials when it comes time to value and sell your business. The owner who underreports revenue for the sake of saving on taxes is not only dishonest but seriously kills the future value of the business and the likelihood of selling it.

3. Not Using The Right Representation

Don't try and represent yourself when selling your business. You need to stay focused on operating and growing the business. Rely on a licensed business broker or mergers and acquisition professional. You can't just choose the first agent you find and assume they're the best, though. You have to take the time to investigate their credentials and learn what they can do for your transaction.

Sometimes, people assume a business sale will be "easy enough," or they think one of their employees may be interested and try and handle this on their own. The owner nearly always underestimates the amount of time, expertise and ability to keep the transaction confidential, not to mention the amount of legal advice and guidance the owner will need. Do yourself and your business a favor and surround yourself with professionals.

4. Not Having Clean Due Diligence Documents

Too often, sellers burn out and begin to mentally check out of their business. But a new buyer, if they are going to pay top dollar, needs to be excited about your business and the future potential. Don't mentally check out until you've worked with a professional to help gather, organize and compile all the necessary due diligence documents that a buyer and their team of professionals will require to validate the financials, contracts, agreements and future potential of the business.

5. Choosing The Wrong Buyer

Depending on the deal structure, it's likely that you will want to feel positively about who the buyer is — not just the dollar amount they are offering. The first offer may or may not be the best offer; even the highest bid may not be your best offer. You'll want to make sure you choose someone who is ready to buy and run a business and help it grow, but just as importantly, someone who will take care of your employees, your customers and the relationships you've spent years developing. Evaluate all the options you have and compare what each offers to what you foresee for the future of your business.

Find someone who can connect with customers and who can deliver the level of commitment and passion to the business that you have always given. These factors will matter a lot more than you realize. If there is one thing I've learned having sold over 400 businesses, it's that small business owners have a love and passion for their employees and customers. Even though the owner may get burned out, they almost always still care about the others who helped them along on their entrepreneurial journey.

A good business sale takes a little planning and preparation but results in a great opportunity for the former and current owner alike. When you take the time to set yourself up for success, these dos and donts should be at the top of your list. This will not only help you find a better deal, but will help you avoid many of the pitfalls of selling a business for the first time.

By Trent Lee, the recipient of the award as the #1 business broker in the country by the International Business Broker Association (IBBA).

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