7 mistakes to avoid when exiting your business:

It’s the American dream: You’ve grown your company, earned a good living, and now you are ready to get out and enjoy retirement, or whatever comes next.  –Selling a business for full value takes careful planning and the right expertise on your side.  It is not a process that business owners go through every day, so it can be easy to make mistakes without experience.  Here are a few of the most common:  

1. Lack of preparation – These transactions can take months if not years to find the right buyer, willing to pay maximal value.  Take the time to make sure your financial reporting is in order, and accurate, and you can defend your valuation.  A good buyer will do a substantial amount of due diligence, and you want them to if that is what it takes for them to justify paying you a higher purchase price. 

 

2. Taking your foot off the gas – If you anticipate selling and lose focus on running the company before the deal closes, business will suffer and you will lose value.  This can be especially true if an initial buyer falls through before finalizing the transaction.  Once you make the decision to sell, you should work even harder to build the firm value and maximize your take away money.  Keep your “eye on the prize”

 

3. Spending time with the wrong buyers/non buyers – Not everyone that looks is a buyer, or at least the right buyer.  Determine criteria to quickly pre-qualify/screen potential buyers from “tire kickers” or others who have no business taking on your company.  They are a distraction and rob you of time better spent working with legitimate buyers or running the business (see #2.). 

 

4. Letting the cat out of the bag – Confidentiality is critical to this process, or the business can lose value dramatically and quickly; Key employees may leave or lose focus, vendors can hold up deals, competitors can steal your customers.  It only takes one slip up, but once the word is out, the damage can’t be undone. 

 

5. Poor footing – You will have more leverage if you have multiple buyers.  Allow them to make an offer and be prepared to negotiate.  Unless you have immediate financial or personal reasons to sell quickly

 

6. Missing your window – Waiting too long to sell can be as bad as selling to quickly.  If you are thinking of selling, pay attention to changes in the economy and to the state of your industry, and look for the best selling opportunity.  Some business owners regret not selling at the most opportune time. By waiting, they subsequently encounter increased competition or have a product that has declined in value because of economic conditions.

 

Chances are few people, if anyone can match your expertise in running your own business every day.  But most business owners typically only sell a business once or perhaps twice in a lifetime.  There are common mistakes made that can be chalked up to inexperience, but most can be avoided with the right team around you. 




John A. Davidson, CPA, CFP®

john@kyleshill.com