Last month, in the first of our two-part series discussing common mistakes sellers make, we addressed five traps into which owners fall when preparing their business for sale. This month, we will take a look at the sale itself and the mistakes owners make once their business is on the market. While this list could contain dozens of items, I am isolating some of the most common mistakes that you are less likely to read about in other articles.
1. Window Shopping
It’s tempting to entertain offers for your business, without any intention of selling. Some find the negotiations thrilling, while others enjoy the ego boost of a strong offer. Do it too often, and you risk becoming the boy who cried wolf – by the time you’re serious about selling, nobody will listen.
2. Cutting Critical Spending
Imagine you spent the past 8 months going through the grueling process of selling your company, and the end is finally in sight. The buyer reviews your most recent financials as a final due diligence check a week before closing, and discovers your sales have declined. Why? Because you chose to cut your marketing budget in order to put a few extra dollars in your pocket. The buyer sees this as a warning sign, adjusts their valuation, and reduces their offer price – or worse, they walk away. Is the savings worth this risk?
3. Ignore Problems & Avoid Questions
I like to joke that the best way to eliminate a problem is to ignore it. As we all know, reality begs to differ. When buyers ask questions during the sale process, answer promptly and honestly – even if it unveils a blemish. The truth will eventually come out, and if a buyer senses you are trying to hide something they will most likely walk away.
4. Plan a Vacation
Your business requires your full attention during the sale, and possibly immediately following closing. Yet, many owners think once they have a Letter of Intent in place and a closing date scheduled, the next step is to plan a big vacation. Closing dates are moving targets, and an owner’s post-closing obligations may not become clear until the final weeks leading up to the closing. Wait to celebrate until the deal is done. Do you really want to be forced to choose between cancelling your vacation and cancelling your deal?
5. Focus Only on Price
Every deal is about both price and terms. Focusing only on a number, without realizing what it will take to earn it, can leave you with a less attractive deal. Would you rather have $500,000 today, or $750,000 paid over the next 10 years?