Over my career, I’ve identified certain “deal killers” that I want to share with you so you can avoid being a casualty. These “killers” apply to virtually all business sales including service and professional service enterprises. Here they are.
Mistake 1: Not Properly Preparing Your Business for Sale
You should not just spontaneously list your business for sale. Sellers need to be prepared well in advance of listing it for sale to demonstrate that their business is worth the asking price.
This means keeping your financial records in order for at least 3 years prior to the year of the sale, including tax and employee records. It’s not just about gross sales less expenses.
Mistake 2: Working With an Inexperienced Business Broker
If you are going to list your business with a broker, then find an experienced business broker with previous experience selling a significant number of geographically close businesses like yours! If you do, it is more likely that he or she will be experienced in effectively and realistically guiding you through a sale. A truly qualified broker can also help with one of the critical steps in listing your business – getting a proper business valuation and financially qualified purchasers.
Mistake 3: Not Understanding the Marketplace of Potential Buyers
What do I mean by the marketplace of prospective buyers? Selling your business at the right time and for the right price is much easier said than done. It is important to understand and accept the reality of the present-day market and what your market is demanding for the sale of your business at top dollar. It is important to price it appropriately. Covid has really affected not only real estate and leisure business but virtually all enterprises. The goal is to set a price that will attract serious, qualified buyers to close the deal at the highest possible sales price. To properly price your business, you will need to know where it stands in the market as compared to others and who is likely to be interested in buying it. Mistake 3 is the reason you should avoid Mistake 2 listed above.
Mistake 4: Not Getting the Word Out to the Relevant Market
With more businesses coming onto the market in New Jersey, it’s important to get the word out and advertise your sale broadly to attract the greatest number of qualified potential buyers. Don’t limit your focus to just one or two potential buyers or the first buyer to make an offer. Instead, continue to market the business to all qualified prospects at the same time to continue generating a sense of urgency and sign a contract for your business.
Mistake 5: Not Offering Seller Financing
While you would rather get an “all cash buyer”, to close a sale, buyers are almost certainly going to demand some form of seller financing to purchase a business. This means you will be required to take a certain percentage of the sale price in the form of a note that the buyer will continue to pay back over time, with interest. Essentially, this means you have an investment in the business even after the sale and participate in a successful transition to the new owner. A buyer receives confidence by your ongoing willingness to invest yourself in your business even after the sale. Furthermore, it will help you close your sale and ensure the new owner’s success, maximizing the chance they will be able to complete their long-term payments to you.
With seller financing, however, comes more risk to you so selecting the right business sale attorney is very important.
Mistake 6: Creating a Strong Sales Listing
While the physical and financial condition and appearance of a business is a critical element in its marketability, how a seller presents the business in his or her “for-sale listing” can be just as important. Sellers who create a strong, carefully thought-out listing with lots of descriptions, photographs, and details almost always have the most successful sale of their businesses.
Mistake 7: Not Getting the Financial Books and Tax Returns in Order
To help make your businesses more sellable and at a higher price, keeping complete, detailed financial books and records for at least three years prior to the sale so that all income is accounted for and can be properly evaluated by the buyer is crucial. This includes removing all unnecessary expenses from the books, such as a “company car” that isn’t actually used for business purposes. A higher tax bill may follow in the short term, but it will also result in a higher sale price because of the higher bottom line once a transaction takes place. Discuss this point further with your business broker.
Mistake 8: Not Renovating and Upgrading the Physical Aspects of Your Business in Advance
A strong sales listing should get you real buyers that are interested in a purchase, but a well-kept, well-run, and physically appealing business with strong physical and aesthetical curb appeal will seal the deal. Business sellers often go to great lengths to upgrade their establishments, but completely neglect how the business looks on the outside. Sellers should remember that the outside of the business and its curb appeal is the first thing a potential buyer (and your customers) will see, and first impressions mean a lot. For this reason, it’s important to make sure the business exterior looks as good as the inside.
Mistake 9: Not Stepping into a Buyer’s Shoes to Objectively Evaluate the Business… and its Value
When selling any type of business, it can be easy to forget what it’s like to be in a buyer’s position. Years earlier, you may have been that buyer!
To make sure your business is as marketable as possible, you need to take a step back and remember what you looked for when you went through the process of buying this business. How much of an impact did your first look at the inside or outside of a business have on your decision to pursue or abandon a purchase? A potential buyer will be going through the exact same process, so those who have taken the time to properly prepare, and can think like a buyer, will be the ones most likely to experience a smooth, successful sale.
Fredrick P. Niemann Esq.
Interested in having Mr. Niemann represent you in the sale of your business? Hopefully by reading this page, you can conclude that Fred himself is an experienced businessman (in fact, he is) as well as an attorney. If so, please call Mr. Niemann today toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com to schedule a low-cost and convenient consultation about your NJ business matter.
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Selling a Business Attorney