Avoid These 3 Common Mistakes When Selling Your Business

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Every intelligent business owner has an exit strategy. In order to get the best possible price and sell the business with the least amount of risk, it is best to do some planning (or at least thinking) prior to listing the business.  Before a business can be properly evaluated (see here to learn how this is done: https://fivestarbusinessbrokers.com/evaluating-your-business/), the business owner must plan or think about avoiding the following three common mistakes during the selling process: Having incomplete or inaccurate financials, overvaluing or undervaluing your business, and allowing one’s customers or employees to know about the sale.

Many business owners deal in cash, use personal expenses as ‘business expenses’ which obscures a true picture of owner benefit, or do not keep up to date financial records. Normally a buyer will want to see the last 2-3 years of tax returns and/or profit and loss statements, along with an up to date financial statement (such as a profit and loss report) for the current year in which the business is being sold.  Such is certainly the case with buyers seeking an SBA loan with which to buy the business because the bank will require these sorts of financials. Other buyers may be ok with bank statements or any sort of other ‘evidence’ (such as invoices, receipts, looking at the POS records, or simply being able to observe the business for a fixed period of time) that can show the true owner benefit. Additionally, some buyers will be satisfied that – with the proper proof – the personal expenses which a buyer uses a ‘business expenses’ were in fact personal expenses and should properly be considered as owner benefit. As part of the evaluation process of the business, Martin at Five Star Business Brokers of Palm Beach County will walk you as the seller through this process. But the bottom line is that a business owner must plan ahead of time and be prepared to show an accurate financial portrait of their business to a buyer.

Many business owners make the mistake of overvaluing or undervaluing their business. It is imperative to trust a professional and trust the pricing of your business to an experienced business broker (see here as to why Martin at Five Star Business Brokers of South Florida is the right business broker for you: https://fivestarbusinessbrokers.com/why-choose-us/). Some reasons that business owners overvalue their business are that they do not think about the buyer’s cost to replace themselves or their expertise, they use unrealistic or incorrect ‘comps’, and they simply do not have the experience of realizing how most buyers will value their business. Alternatively, many business owners undervalue their business because they do not understand how much net income (or owner benefit) their business actually produces, and because they do not understand that effective advertising often time attracts buyers who can use the power of synergies by integrating the business being sold with their own. A properly valued business will result in a much quicker sale and will maximize the purchase price for the seller.

A confidential sale for an intelligent business owner should be a top priority. Virtually any business is subject to competitive pressures or has employees who will become frightened if they find out that the business is being sold. Without a confidential sale, competitors will be more likely to steal customers or employees, suppliers may not give good vendor terms, or employees may become dissatisfied or even quit. Five Star Business Brokers of Palm Beach County uses the most stringed non-disclosure agreement (or NDA) in the industry in order to protect the confidentiality of the sale. Without a business broker professional who is protecting your interests by having every single prospect sign an NDA, your business will be at very high risk. Experience has shown that it is almost impossible for a business owner to get in contact with prospects themselves (by advertising the business themselves or by simply waiting to be approached by ‘prospects’) and still maintain the confidentiality of their business. Further, prospects need to be qualified so the business owner does not waste his or her time with prospects that can not afford to buy the business or can not get the proper financing.  Five Star Business Brokers of Palm Beach County ensures that every prospect is properly qualified.

Maximizing the sale of your business and minimizing risk to your business requires an accurate and up to date financials or means of showing the true income of you business, knowing the true value of your business, and maintaining the confidentiality of the sale during the selling process.  These three simple steps will sure to result in the successful sale of your business.

Give Martin at Five Star Business Brokers of Palm Beach County a call today for a free evaluation for your business.

Located in Palm Beach County, Florida, Five Star Business Brokers proudly transacts business sales throughout the areas of West Palm Beach, Lake Worth, Palm Beach Gardens, Boca Raton, Jupiter, Delray Beach, Boynton Beach, Wellington, Palm Beach, Royal Palm Beach, and Riviera Beach.

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