Selling your business to an outsider is no easy task. As we have mentioned in previous blogs, statistically, only one in five, or twenty percent of the small businesses that enter the marketplace actually sell. Even more devastating than these statistics are the vast numbers of possible sales that fell apart during their negotiations and never made it the closing table. Most deal killers seem to suddenly appear in the heat of deal negotiations, but truth is, many are a myriad of incorrect assumptions and expectations that were not addressed prior to putting the business on the market. Add to this list, a lack of preparation and planning and it is no surprise that only twenty percent of businesses achieve a successful sales. So what are these dreaded deal killers? Below is an excerpt of our top ten deal killers from our book, Cashing Out of Your Business;
1. Owners do not understand how the business will be valued. Most owners of closely held businesses have suppressed profits to reduce taxes.
2. Owners have an unrealistic price in mind. Recent surveys indicate that few companies have a current, accurate business valuation. Half of the time, owners are unrealistically high in their asking price, and the other half of the time, they are low.
3. Owners do not understand the investor’s motive. Investors are looking to the future for return on investment and growth potential. The investor seldom buys what the seller thinks he is selling.
4. Owners do not have proper counsel. Talk with business owners who made an ill-fated attempt to sell their own business. Most wish they had used an experienced intermediary.
5. Owners try to sell to the wrong people. One of the biggest mistakes is to think that the best investor for the business is a competitor, customer, or supplier.
6. Owners assume the best investor is local. Most sellers naturally assume that the market for their business is the immediately surrounding area.
7. The company is not positioned for sale. Factors like organization, growth opportunity, reputation, and industry leadership are some of the many intangible qualities investors appreciate.
8. There is improper documentation. Investors are evaluating the purchase based primarily on future growth potential and expected return on investment.
9. Owners do not plan for the sale. Many business owners have not calculated their Wealth Gap or how much money they will need from the sale...
10. Owners are the first to mention price. One cardinal rule of negotiating is never to be the first one at the table to mention price.
As you can see from this list most of these deal killers do not involve the buyer at all but are a function of being prepared for the sale. To improve your probability of a successful transaction and disarm the deal killers surround yourself with the proper advisory team who can assist you through the largest transaction of your life.
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