The process of selling your business is quite hectic and difficult for the likes of a lot of business owners. This is a reason why having a reputable business broker on your site is important, as he would not only give you good advice but would also help you in avoiding the costly mistakes, most of the business owners make when selling their business.
The blog post covers 3 biggest mistakes, business buyers make when selling out their businesses.
- The Business Seller Stops Working on His Business
You think that after you have put an on sale board on your business and found an interested party, you can relax. It’s understandable to have some temptation to slack off and stop working on your business after you have decided to leave it. However, this is not the right approach to go about it, when selling your business. Even though you would find interested buyer who are willing to cut off the deal and purchase your business, chances are that the deal won’t close up. This means that now you would have to put the business back into the market, and since you stopped working on it, it would be worth much less, as you didn’t pay attention to its low cash flow and inventory. The business that has reduced its returns can’t go on the same price. This means that despite your decision of selling your business, you have to keep working till the day it’s officially sold to another party.
- Business Records are Inappropriate
This is a mistake that business owners might have made early in their business. You could have resisted tax records as your only accounting information for your business for some time. When selling your business in sometime, you would have to consult your accountant to prepare the profits and loss statements accordingly. Most of the business owners want to minimize the earnings for IRS purpose, however this could mean low valuation if it’s the only source of your buyer’s financial information. The buyers are always interested in knowing each and every detail of the financial information, mostly going back to a minimum of 3 years of the financial information period. This means that you need to keep complete records, pay your taxes and still show good enough earnings for the buyers to be interested in your business.
In case your business is going in loss, we can still help you in selling it by suggesting some changes to the potential buyers to make it successful. Yes, we are there to recast your financial records; however we still require positive financial statements. Also, keep your business statements separate from the personal ones to avoid getting into an accounting mess.
- Expecting to Get Back the Cost of Renovation through Sale
You most probably have put in a lot of investment in your business overtime, to make it earn you the money, its making. However, the value of your business doesn’t always be the money you’ve put in it. The potential buyers buy a business on the basis of cash flow, and this holds true in most cases. They would pay you for everything that is furniture, fixtures etc., but they would not pay you the amount you paid when all these things were new. Even if you have everything renovated, it would still be wrong to expect them to pay for it, as you don’t know if the buyer is going to rip off the newly installed tiles to suit their personal taste or not.
This means that you would have to cut off the depreciated cost when calculating the total amount for your business. The buyer would pay you 30-40% of your costs, but not all of it.