Eight Common Mistakes Sellers
Selling a business is something you either want to do or are
forced to do. Naturally, you want to make top dollar from the
transaction. The easiest way to do that is to avoid the most
common mistakes that all sellers make.
1.Not interviewing enough professional business brokers.
A national survey reported most sellers interviewed one agent
before listing their business. The next group of sellers interviewed
two agents. So the first agent in the door is the most likely
one to get the listing of the business. By interviewing only
one or two agents, you are only assured of meeting the most aggressive
agent, not necessarily the one with the best marketing plan for
you and your business needs. Lastly, most sellers called a "real
estate agent" thinking it was the same as a "business
broker." While licensing requirements may be the same in
some states, they are two entirely different careers and disciplines.
Trusting one of your most guarded assets to the first person
you meet simply isn't the way you grew your business, so why
2. Choosing a professional business broker based on how high
he or she is willing to list the price of the business.
After showing you a financial business analysis, examining
your business, assets, books and records, viewing your competition
in the marketplace, your business broker should have a pretty
good idea how much and how quickly your business will sell.
But many sellers have their own ideas. They want top dollar
whether the business warrants it or not. To get the listing,
the business broker may sense this and play to your ego. Why?
Because the business broker can't lose - even if he or she doesn't
sell your business.
The broker also knows that after the business doesn't sell,
he can come back to you (He'll skip the "See? I told
you so!" part) and you will allow a price reduction.
Then the business will sell. The problem is that when you are
forced to reduce the price, you will likely end up with less
than if you had priced it correctly in the first place.
Why? One of the things buyers consider when they shop for
a business is how long it has been on the market. If it has been
too long, they think "overpriced" or now it's time
for a "bargain." Odds are you will be offered a significantly
lower than what the broker should have priced your business for
in the first place.
3. Choosing business brokers who advertise only in the local
Many business brokers are still fighting progress tooth and
nail, and they still aren't ready for the Internet or any other
kind of national, let alone international marketing campaign.
Business sales do occur at the local level, but there are
also many free or low cost, effective Internet sites, business
magazines, and national classified ads that produce results.
If your business broker doesn't have a marketing plan that includes
national exposure, he is relying too much on other brokers to
sell your business. Who could best buy your business, someone
in the community or someone new to the area that is looking for
4. Overpricing the business.
It is human nature to regard what belongs to us with the eyes
of love. Aren't our children more beautiful? Aren't our mates
Our businesses are no different. Beauty is in the eye of the
beholder, and that is why most sellers are tempted to overprice
their businesses. A high price is prestigious. It shows everyone
how important you are. But too high a price could eliminate buyers.
Most buyers are pre-qualified. They know what range to look
in. If your business is overpriced, they will compare it to other
businesses in the same price range that have more to offer. The
result is that they pass right over your business. Many buyers
in your price range won't even consider your business because
you have eliminated the ones who are willing to buy at the top
of their range.
5. Putting too much value on personal improvements and original
(dated) equipment cost.
Everybody customizes a business when they build, start, buy
or takeover. You like neat and orderly books, records and an
office with wallpaper, while another is content to pile everything
in boxes and just give it to his accountant. You like a spacious
open floor plan while another fills every square foot with product
for sale. That POS (Point Of Sale) cash register program you
put in two years ago for $15,000 is terrific, but the next buyer
may view it as a financial drain. The newer version is only $8,500;
runs quicker and provides a map and directions to the customers
home. To you, it is still worth $15,000. To the buyer it may
be only worth $2,000 - 3,000 to say nothing of the repair and
What about the manufacturing and assembly equipment installed
five years ago? Do they meet the new requirements or is it time
for re-tooling? Granted you paid $200,000 five years ago for
the equipment and they need $40,000 in re-tooling today, what
is the equipment worth? Surely you want the $200,000 and the
buyer can spend $40,000 on retooling if he wants to, that's up
to him right? Well, the buyer can buy the same "reconditioned
equipment" retooled with a warranty for much less. Sometimes
It is best to look upon improvements as something you did
to please yourself or enhance the business.
Don't expect updates to add value to the business. They may
have been required due to local, state or federal code changes,
or to increase your bottom line. We won't even discuss how much
has been recaptured in depreciation.
6. Mistaking activity for interest
When people are interested in a business, they make offers.
If they aren't making offers on your business, something is holding
them back. Many brokers routinely ask for feedback whenever your
business is shown or exposed, but a lot of brokers do not follow
through with this courtesy. Feedback is crucial to understanding
why you aren't getting offers on the business. The lack of response
is usually due to two things - the business is in a state of
poor condition and/or it is overpriced.
7. Failing to prepare the business for sale before it goes
on the market
Preparing the business for sale can include everything from
spring cleaning, to repainting, to clearing out clutter, to making
repairs, and so on. It's hard work!
Many people leave their exteriors and interiors as is, but
if you haven't updated in years and the business looks outdated,
your business will not compare as well as others who have taken
the time and gone to the expense to freshen the appearance of
the business. How is your parking lot and exterior sign? This
is the first impression a buyer will have. Does it invite them
in or tell them to drive by and look at the next business on
the list? Once they are in the lobby or main office, what message
does this area convey? Remember, the first time they will be
thinking like a customer. Don't forget the restrooms. Especially
if you are dealing with the public. Are they up to code? Handicap
access accessible? What is required if the new buyer wants to
expand? Having the answers before the question is asked will
keep a buyer interested.
8. Failing to heed the advice of experts
When you are represented by a good broker, he or she is trained
and has experience in the marketplace. Do not hinder your broker
by telling the broker what to do, when to do it and how to do
it. Your broker won't be able to help you. But if you are willing
to listen and weigh what the broker is telling you, you will
know from the forward progress of the transaction that you received
Business brokerage is the smallest segment of the real estate
industry. There are very few professional business brokers in
relation to the thousands and thousands of good real estate agents,
REALTORS, commercial and industrial real estate agents. Choose
a licensed professional willing to back up their work in court
if need be.
- Bizology - the
study of business for sale
to : info [at] bizology [dot] com
- Chambersburg, PA 17201-1712
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