For over 16 years, Acquisitions Direct has been recognized as one of the top internet business brokers. As the oldest internet brokerage firm on the web today, we’ve sold over 350+ businesses since inception. During that time we have seen a large majority of those transactions go very well, however a small percentage have not gone as smoothly as they could have. While our internet brokerage firm is there to support the buyers and sellers through the sales process, there are a few key areas that sellers can avoid to ensure a smooth transition and prevent a transaction from falling through. Our Internet Business Brokers are there to coach and advise sellers every step of the way. Below are the most common mistakes that sellers make and how to avoid them:
- Waiting Too Long to Sell: One of the hardest things to know about a business is when it has reached a good time to sell, or when the operations of a business are beyond the skillsets of the current owner. It’s a very different skillset to run a business with a few employees then it is to scale it up to 50+ people. Most people are either good entrepreneurs at starting a business or they are good at taking an existing business and scaling it WAY up. Very few people have the skills to do both. Better for the “entrepreneurs” to “cash out” and start something new then for them to try to scale. It is always good to know your strengths and what your skillsets are. This will help you decide when it’s the right time to move onto another opportunity.
- Not Having Your House in Order: When you put your house on the market, you would never list it with cluttered rooms or unfinished home improvement projects. You would want to show the house in the best state possible, enticing a buyer to make a full price offer. When selling your business you want to approach it the same way. Make sure you have all financials and tax returns in order. Additionally, make sure any lease issues or staffing problems are taken care of. This will ensure a smooth due diligence process and make the whole transaction go a lot better.
- Carrying Too Much Overhead Expense: Online business valuations are based on profit, not topline revenue or sales volume. In order to get the maximum multiple for your business you want to show as much profit as possible. In the years and months leading up to the sale of your business you should try to cut out all unneeded expenses. Additionally, having too much inventory on hand is seen as high risk to a buyer. Cutting back the amount of inventory on hand not only reduces cost, but also gives the buyer less to consider when weighing the risks of purchasing your business.
- Overconfidence + Pricing problems: A lot of the sellers we complete valuations for come to us with a price in mind of what they think their business is worth. Either they saw another similar company sell for a high price, or the look at the revenue the business is generating and value their business strictly on that. The truth is a broker takes a lot of variables into consideration when valuing a business, and the most important is profitability. A buyer is not likely to take a risk on a company that is showing an alarming downward trend or is not profitable. Having too much confidence that the buyer will see your business the same way you do will lead to frustration and disappointment. Knowing how to price an online business that will be attractive to buyers is something that an online business broker can talk through with the seller. Our Internet Business Brokers work with sellers to set the price, and will advise if selling down the road would be a better option for them. Showing a positive trend is very important factor. We value businesses based on 90% to 100% cash at close. We will never overvalue a business just to get a listing. It is very common for brokers to take listings at high multiples just to secure the listing in hopes the owners will lower the price after a few lower offers or take large earn outs. We believe in being 100% honest with our clients and setting realistic expectations so the sales process goes more smoothly.
- Taking a Hands-Off Approach: Working with an online business broker takes a lot of work off of the seller, but one of the biggest misconceptions is that the seller can take a back seat. While a broker will definitely weed out buyers that are not serious, the seller has responsibility to answer questions via email and attend conference calls when necessary. While you may write a check to buy a million-dollar house without ever meeting the current owner, a buyer is unlikely to write a check for $1,000,000 without having all their questions answered by the seller to ensure they are making a good investment.
- Not Being Open to Different Types of Deal Structures: Coming to an agreement when selling a business can take several different paths. It’s important that both the seller and the buyer come to an agreement that both sides are comfortable with. Sometimes buyers want the owner to hold a note, for a minimum of 5% for about a year or as an alternative that amount be held in escrow until the transitional support for the transaction is complete. A broker can help navigate and review these deal structures and the impact they can have.
- Not Having the Right Connections in Place: When you are an entrepreneur you pride yourself on being able to do it “all”. When it comes to selling your business, having the right connections in place ensures that you have reliable experts in each area to support incoming requests from buyers during the due diligence process. We advise having connections with accountants and lawyers, on top of having a broker in place to help guide you through all the steps of the sales process.
- Failure to Define Post Sale Transitional Support: You’ve finally sold your business, what an exciting time for you as a seller! On the flip side the buyer is now officially the owner of your former business and will undoubtedly encounter a lot of situations that will spark questions and concerns. Be sure to define and set expectations for post-sale transitional support and make sure the buyer is clear on those during the sales process. Any negotiations or additional requests should take place during the sales process as part of the purchase agreement. It’s typical to see 2-6 weeks of transitional support, and in some cases the seller may stay on long term as a consultant. A buyer cannot expect to have an endless lifeline of support coming from the seller with regard to transitional support.
A lot of time, money and elbow grease went into building your business and you are no doubt proud of your accomplishments. Selling your online business for a price that represents what you put into it, but also what a buyer will see as fair market value, will make the selling process a lot smoother and lessen the timeline in which your business is on the market. An online business broker can help you set the best price for your business, ensure that your financial statements and marketing metrics are complete, and even help you decide if it’s the right time to sell. Plus, an online business broker will do the leg work, finding prospective buyers, vetting them and facilitating the sale from the negotiation process onward. To learn more about our services contact Acquisitions Direct today.
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