According to a recent survey by BizBuySell.com, 58% of brokers feel that seller misconceptions are the biggest hurdle to the successful sale of a business. Looking to sell your business? Then get your head in the game and don’t make these mental mistakes.
Misconception #1: My business is the shiz. I know what it’s worth and it will be a piece of cake to sell on my own
I bet your business is awesome. But, did you know that 75-80% of all listed businesses never sell? Why? Well, there is debate, but according to BizBuySell and other surveys of industry professionals, the main problem is unrealistic seller expectations, especially related to business value and selling potential.
Selling Your Business for $1,000,000 would be great, but how much is it actually worth?
The reality is, many businesses are overpriced. And when they are overpriced, they often never sell at all (pg 222). You may just be too close to your business to value it unbiasedly and fairly. Business value is going to vary, but one year’s profits x 1-3 is the general range. More commonly, the multiplier is between the 1-2. So, if you are well above that, it is time to re-evaluate. Remember, buyers will care about how much money the business will put in their pocket and how likely it is to transition successfully to their ownership, not the blood, sweat, and tears you have invested over the years.
So what can you do to avoid overpricing your business and make it stand out from the crowd?
If you want to sell your business, here’s what you need to do to make your business stand out and be one of the 20% of businesses that do sell.
- Hire a Seasoned Broker Who Has Experience Valuing Businesses – The knowledge, experience, and connections a veteran broker brings to the table, are invaluable and significantly increase your sale chances.
- Put Together a Strong Financial Case for Your Business’ Asking Price – If the buyer can tell you have done your homework and you can back-up your valuation with hard figures, your business will have a much greater chance of selling and selling for close to your asking price.
- Make Yourself Replaceable – Buyers are looking for businesses with the personnel in-place to ensure a successful transition.For more information on selling a business, check out our in-depth FAQ on Selling a Business.
Misconception #2: Ain’t nobody got time for seller financing, my potential buyers got the deep pockets
Do you picture your buyer as a high roller who is swimming in the cash? That could be the case. But, more than likely, it will be someone similar to you who is just looking to take-charge of their career and is finally taking the steps to do so. That’s why seller financing is so important.
Why You Should Consider Seller Financing
According to 74% of brokers, seller financing is still an essential component of closing the sale of a business. Interestingly, only 58% of small business owners thought the same. If you have been leaning against seller financing, here are some reasons you might want to change your mind.
- Your Total Sale Price Can Increase by 15% or more – Businesses that offer seller financing typically result in a final sale’s price that is at least 15% higher than non-seller-financed businesses that sell. Enough said.
- You Significantly Increase Your Pool of Buyers – If you are willing to offer seller financing, you automatically increase your buyer’s market by a significant number. The more buyers that are interested, the more chance of selling your business.
- You Can Often Make A Significant Amount On Top Of Your Selling Price in Interest – The going interest rate for seller-financed loans is around 6-10%. For a 7 year $300,000 loan with 6% interest and a $90,000 donwpayment, that’s an extra $47,695 or so that you would make in interest. Not bad.
There is certainly inherent risk in providing seller financing. If you have a cash buyer, it is not a bad idea to just go for it and get your money. But, that is not always an option, which is when seller financing becomes important.
Want to learn more about the details of seller financing? Check out our Seller Financing Guide.
Misconception #3: Hotcakes . . . My business will sell like hotcakes. Several months or less, guaranteed
Confident that your business will sell quick? You are not alone. Nearly half of small business owners surveyed were confident their business would sell in 5 months or less. But the problem is, many businesses actually take longer than that to sell.
Be Prepared for the Long Haul
Although average business sale time increased in the last quarter of 2014, it still generally takes 6-12 months for a business sale process to conclude, not factoring in ongoing owner support/seller financing payments, which often continues for at least 1-2 years. The important thing, is to have a realistic timeline and mindset. If you are offering seller financing, you may actually have a fairly significant time commitment for several years, especially if you agree to stay on and help, which owners often do. If you help the business transition successfully, then there is a much better chance your loan payments will come in steady and on-time.
What happens if you are not prepared?
There are several things that happen if you are not prepared for a longer business sale process.
- You Rush the Deal – If you have a specific timeline in your mind, then you can often rush the process, which can make you settle for less or push the buyer away.
- Your Business Comes Across as Disorganized – If you are not prepared for a longer sale’s process, the odds are your business will suffer and things will fall through the cracks, meaning more disorganization and a lower business value.
So What Do I Do from Here?
Now that you know some of the common misconceptions you have to guard against when you decide to sell your business, you are already ahead of the game. Have more questions? If you do, check out our seller’s guide, which has in-depth answers to 10 of the most common questions that small business owners ask when selling their businesses. Once you have done that, get an accountant, a broker, and a lawyer, and you should have all the pieces in place that you will need to ensure a successful business sale.