Most Common Mistakes Made When Selling a Business
Your business has been profitable for a while, and you’re ready to take a backseat. Since you can see its value, you assume it should be easy to sell. Now you’re just concerned with how much you can sell it for and how soon you can close the deal. But it’s not as simple as that.
When selling your business, you may be making some of these very common mistakes that could prevent you from finding a buyer.
P&L Doesn’t Match Your Tax Return
The first thing a potential buyer wants to see is your profit-and-loss statement, or P&L. This is where you showcase your company’s profitability for the previous accounting year. But when you compare your P&L to your tax return, the numbers might not match.
Perhaps that’s because you use a different accounting method or your CPA made YE adjustments which are reflected on the Returns but the books have not been updated. This. Is an easy fix so we will help you get this corrected before we list the business.
A net loss on your tax return doesn’t usually strike confidence in the buyer pool. But this is why having Sunbelt recast your financials is so important. If you want to sell your business, be prepared to pay taxes to verify your company’s value on paper.
You Use Recent Performance for Your Company’s Value
Some buyers make the mistake of using their company’s recent performance to arrive at the sales price for their business. While a thriving business may be a bit more valuable than a stagnating one, your most recent performance isn’t enough to make up for the years of mediocre profits.
Calculating the value of a business isn’t easy, especially if you don’t typically buy or sell businesses. This is where the expertise of a broker is necessary. They can analyze your numbers and help you determine the best sales price.
You Accept a Letter of Intent
Some buyers offer a letter of intent, or LOI, promising to purchase your business. The letter of intent isn’t legally enforceable like a sales contract, and it usually includes verbiage that allows the potential buyer to back out. For the seller, an LOI merely leads to a drawn-out deal that could actually decrease the value of your business.
Sunbelt doesn’t accept LOI’s for that reason. Going directly to a contract puts the buyer and seller on the same page of intention. By making the process clear to both parties, the chances of a successful sale increase for a win/win.
Emotion Based Business Valuation Pricing
If you’ve spent years of your time and energy building your business, you’ve probably made an emotional connection with the company. A potential buyer doesn’t have that. When you price your business based on those emotional numbers in your head, it will be difficult to sell.
People make similar mistakes when they sell a home. Instead of pricing it to align with the market, they price it for what they think it’s worth. For a business, it’s primarily the numbers and Sunbelt offers a free online business calculator tool to help you understand what goes into a business valuation.
When you work with a business broker, they can guide you to understanding the numbers and help you assess the company’s value and recommend the best sales price. A broker can also pre-screen buyers to ensure any offers you receive come from serious buyers. Contact Sunbelt Business Brokers of Naples for a free valuation & consultation.