Common business mistakes that you have made while running your business for a long time, and you are looking at retirement. Or perhaps you have been working in the same industry for a long time and feel it’s time to move on to a new venture. Whatever your reason, you feel like now is the time to sell.
However, when it comes to business and investment, Timing is everything. Unfortunately, business owners typically make mistakes in this area. When selling a business, avoid these mistakes. There are many factors to consider. More often than not, if the Seller is not aware of these issues and does not work to avoid them, selling a business can harm their financial future.
Here are 7 of the most common mistakes entrepreneurs make when selling a California business, along with tips on how to avoid them.
Selling a Business without Determining Transition Cash Flow
That is a lot of fancy language that essentially means that if you sell before examining your cash flow, you might make a mistake. If you then look at these 19 cash flow strategies after your sale, it might be too late. Whether you plan to retire or reinvest the funds you realize from the sale of your business, it is essential not just to focus on the amount of the sale. Consider how that amount will affect both your wealth and your cash flow.
- Consider where your cash flow originates and how you utilize it.
- Calculate income tax liability.
- Look at your risk and liquidity profile. Determine how the sale of your business impacts both.
Looking honestly at these factors will help you determine the Timing of your sale. Decide whether you should hang on to your business or sell now. Review your retirement planning and the income you will need to maintain your lifestyle. Also, determine if the sale supports or hampers that plan. Review these everyday business selling mistakes for a better understanding.
Expecting Cash from Selling a Business
Of course, a cash deal would be the ideal situation, but that is typically not the case. While the business owner will get some cash at closing, typically, there are other parts of the deal involved.
- Seller Financing: The Seller often finances at least part of the deal.
- Earn-outs: Money received on the contingency of the future performance of the business
- Escrow/Holdback Agreements: Agreements that say a Seller will finish future work before receiving the final payment.
The point is that the Seller may be waiting for a large portion of the money from a sale, and will not see it right away. This is a factor to consider when retiring or moving on to another business endeavor. The full price you get from the business sale will not be in your hands immediately.
The One-Buyer Error of Selling a Business
While it may be simpler to evaluate one offer at a time, it may give the impression that the Seller does not need a business broker or similar professional to help them sell their business. However, this is seldom the case for several reasons.
- The Buyer seldom offers the best price and terms they could afford, or the market would offer, because they don’t face any competition from other buyers.
- Legal documents must still be drawn up and filed, depending on the type of sale and the business’s niche. A professional is the best way to ensure that these steps are completed fairly on both sides.
- There are several ways to sell a business that can be explored, including management buyouts, employee buyouts, financial buyers, strategic buyers, and even an initial public offering (IPO). All of them should be considered.
Entertaining several buyers and considering a variety of offers creates more options and purchasing outcomes. This ensures that you find the right fit for both you and the company. Keep your options open for the best outcome.
Not Being Prepared
When you find a Buyer, they will perform due diligence on your company. None of this should come as a surprise to you, because you should have done it yourself already. Is your business ready to sell? Is it attractive to buyers? What is your financial position currently? What is the outlook for both your business and your industry?
These are things you should review regularly anyway. When selling your business, a thorough examination of all of these areas can result in increased profitability before the sale. Regardless of who the Buyer ends up being or the method of purchase, this is a positive outcome.
Selling a business independently is a significant mistake.
Remember that you also need to work with your accountant. They have likely set up your books to minimize tax liability, and balance sheets and profit and loss statements should be recast to show the Buyer the actual income and the earning potential of your business.
Selling a business is tricky, and you need the help of a professional business broker to navigate those intricacies. They help you avoid many of the most common mistakes people make when selling a business.
Have questions? Ready to sell? Contact us here at Rogerson Business Services, and we will help guide you to the best outcome when selling your business. Additionally, we help you avoid these 10 common mistakes.
