At Acquisitions Direct, our business brokers are there to coach and advise brand sellers every step of the way. Below are the most common mistakes business owners make when selling their brand, 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. When things are going well, it’s easy to ride that wave. When revenue starts to decrease, or operations get harder, brand owners will think about exit strategies. What we’ve seen over the 20+ years in the digital M&A space is most people are either good entrepreneurs at starting a brand or they are good at taking an existing brand and scaling it 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 weaknesses are. This will help you decide when it’s the right time to move onto another opportunity.
- Carrying Too Much Overhead Expense: Online business valuations of brand-based businesses are driven by profit, not topline revenue, or inventory. In order to obtain 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: Many 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 they 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 an 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 a very important factor. We value businesses based on 90% to 100% cash at close to the business owner. We will never overvalue a business just to obtain 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 receiving a few lower offers or agree to take large earn outs. We believe in being totally 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. A broker will work hard to bring in serious buyers and weed out buyers that are not likely to progress in the sales funnel. The seller has responsibility to answer questions via email and participate in conference calls when necessary. Failure to do so will likely result in serious buyers moving on to other opportunities. 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 speaking with the seller and having all their questions answered by that seller to ensure they are making a good investment.
- 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 business relationships with accountants and lawyers, on top of having a broker in place to help guide you through all the steps of the sales process.
We communicate with sellers every day that share their journey and pride in the business they have built. Selling your brand, the business that has been the main focus of your life, for a price that represents what you put into it is always the desired goal. Hiring a broker will help bring a connection to what a buyer will see as fair market value, and will make the selling process a lot smoother. This will hopefully 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.