Avoid These Common Pitfalls When Selling Your Business
Harry and David revolutionized the way things were done in their industry. When they came on the scene, no one had ever seen anything quite like the world they created. In their first year alone, they moved over a million units, received numerous awards, and were number one in their market.
Harry, however, could never seem to get what he was after…which is exactly the way David designed it. No matter how hard he tried to succeed, David made Harry’s life difficult at every turn. It almost seemed like David wanted him to die! In spite of their differences, however, they had a very profitable business relationship for nearly 30 years.
No, not that Harry & David…the creators of “gourmet gifts for every occasion.”
I’m talking about Pitfall Harry and David Crane. In 1982, David (a programmer for Activision) released the game Pitfall! for the Atari 2600 system. It featured our 2-D hero, Pitfall Harry, attempting to collect 32 treasures in under 20 minutes while avoiding the kind of neverending peril you would expect to find in the jungle: pits, quicksand, rolling logs, scorpions, etc. The game was the #1 best seller in 1982 and held that spot for a record 64 weeks. It won numerous awards, made Harry a household name, and made David one of the most successful designers in the industry.
Much like Pitfall Harry, you may find yourself attempting to avoid several hazards as you navigate your way through the jungle of selling your business.
9 Potential Pitfalls When Selling Your Business
So to help you before the timer runs out, here are 9 potential pitfalls when selling your business you may encounter (and how to avoid them):
1. Don’t go alone. Have representation.
Like a crocodile watching someone swing on a rotten vine, shrewd buyers recognize when they are dealing with a seller without representation. They are more familiar with the process, and they are experienced negotiators.
2. Be sure you know your business.
Owners can often sabotage a sale because they are unprepared. They signal to the buyer that they don’t know what they’re doing. To solve this, we don’t start contacting buyers until the seller is fully prepped by our team. We do our homework and make sure the seller is confidently informed. You would be amazed at how many business owners are unaware of key parts of the company they created! If you’re going to take your business to market, you simply have to know your business.
3. Don’t assume you know where all the buyers are.
When we are preparing a business for sale, an owner may say something like, “I know all the potential buyers in my industry, so I don’t know how you could help me.” But the reality is that because of the tools and nationwide connections we have, we probably know a lot of buyers that they’ve never heard of! Trust the experts who have been doing these transactions for over 30 years to know where the treasure is hidden.
4. Don’t limit your options. Pursue several buyers.
Pitfall Harry knew that he could always drop down into the tunnels when it didn’t make sense to run along the surface. Attempting to sell to only one buyer puts you at a disadvantage in price negotiations. If that buyer knows that they’re the only person you are talking to, you are much less likely to succeed. Having multiple bidders puts you at a distinct advantage.
5. Know your value range before you start.
You need to have a realistic expectation of what your company is worth, so have a professional give you an opinion on your range of value. This is the first step in our process at Southard Financial. We want sellers to have reasonable expectations.
6. Make the buyer bid first.
It seems counterintuitive, but never set the price. Always make the buyers give their bid based on the information you present to them. It’s not like selling a house where you list a price first and wait for prospects to come to you. As soon as you announce an “asking price,” you have just set your ceiling. You want the other side to make the first move.
7. Make sure your financials are professionally prepared.
If there are any holes in your books that the buyer can find, they will. More than likely, this isn’t the buyer’s first rodeo. They’ve been through this jungle before, and they know what to look for. Their ultimate goal is to make the price lower—so they will do everything they can to poke holes in your financials. A professional accountant can help your put together airtight financials before you go to market.
8. Do not make changes during the process.
No raises, launching new products, etc. unless you can provide accurate and realistic forecasts of the impact. Once you make any kind of alteration from your initial presentation (e.g. giving a raise to an employee during a deal), you are stuck. If you have an astute buyer, they will see that and force the price down.
9. Be prepared for due diligence.
Buyers are making a big investment. They are on a quest to win your treasure, and they do not want any surprises once they head into the jungle. In the last several years, the process of due diligence has gotten very intrusive. For the unsuspecting seller, it can be overwhelming. Lots of data gets pulled from lots of places, and no stone is left unturned. Our role at Southard Financial is to look ahead and know the path well enough to make sure your company has the capability to get the info the buyer is going to want.
Southard Financial’s role is to coordinate the process to avoid pitfalls when selling your business—helping you find the right buyer. People who try to handle their own sale don’t know what they’re walking into. You need a guide who has played this game many times already. We know the best route and can help you avoid the pitfalls so you get a great deal for your company.