Selling Your Business: Maximize Your Exit & Avoid Mistakes

As a business owner, you've not only invested immeasurable heart, sweat, tears, time and money into your company, but you've made a major contribution to the economy, society and the communities in which you've done business.

So when it's time to sell your business, you deserve a scenario equal to the impact you've had and the effort you've made — which means doing everything you can to ensure the best possible result.

To that end, here are mistakes to avoid when a sale is in your future and guidance for maximizing your exit.

Mistake #1: Insufficient Preparation

All businesses require some cleanup and preparation before sale to maximize their value, and the time to begin is long before you're ready to walk out the door.

How much time you'll need depends on the condition of your business. Ask yourself these questions to find out:

• Are your accounting practices up to speed? Buyers will want your financial statements to be prepared in accordance with GAAP, and you'll need historic and projected financials reflecting any adjustments.
• How organized are your business records? Buyers will also want to review your contracts, other governing documents and employee handbooks. These should all be collected, complete and well-organized.
• Do you have the right people in the right jobs, and are they being paid market rate salaries? Your team is an important aspect of your business' value to buyers. Make sure your organizational structure and staffing model are clear, and be able to demonstrate that salaries reflect industry and role norms. Otherwise, you're handing prospective buyers a bargaining chip.
• Do you have any pending or threatening litigation? These increase risk for the buyer and full disclosure is mandatory. While not every legal matter can be resolved before going to market, handle those you can.

Mistake #2: Neglecting to Look at Your Business from a Buyer’s Perspective

Sellers and buyers tend to look at different aspects of a business.

Business owners often focus on income potential or maintaining a steady group of clients over a long period of time. Buyers will look at growth potential, management depth, customer base diversity and return on investment.

If you're seeking to sell, start to view your businesses through buyer's eyes when making decisions and investments.

Mistake #3: Too Much Dependency on You

If your business could not continue without you (or if post-sale transition challenges are likely), you have business owner dependency issues.

Address these as soon as possible because ignoring them will affect the price a buyer is willing to pay.

Ideally, build a strong management team to support the CEO and train employees to minimize transition issues after purchase.

Mistake #4: Failing to Keep the Transaction Confidential

Most business owners are loyal toward their employees and some feel compelled to tell their employees they are selling the business. However, doing so can adversely effect the sale as employees become concerned about losing their jobs and leave.

After all, your buyer needs those employees to maintain profitability once ownership has changed hands.

That said, it's common practice to tell key employees about the pending sale because their help will be needed to complete the transaction. In many cases, the buyer and seller will pay these employees a retention bonus.

Mistake #5: Using a DIY Approach to Selling Your Business

The sale of your business is likely the most important transaction of your career, but owners who try to sell on their own are taking a huge risk. It's that complex of an endeavor.

In the same way you needed employees with specific skills and expertise to establish and grow your business, you need experienced professionals to maximize your exit.

Surround yourself with an A Team to ensure you walk away with the optimal reward for everything you've built. These professionals have the expertise you need on your side:

• Business Advisors — help in advance of the sale to get the operational and strategic areas of your business prepared for the transaction. This includes assisting with employee-related issues and transition training.
• M&A Advisors — identify buyers, prepare materials, support the you (the owner) during the process and secure a good price for your business.
• Corporate Attorneys — manage due diligence, negotiate the purchase agreement and oversee all the documents needed to support and complete the sale.
• Accountants and Financial Advisors — assist with business valuation and deal structure, and also help you consider the tax consequences of decisions.

Not convinced? I urge you to ask anyone who's ever successfully sold a business.