Pitfalls to Avoid on Your Way to Selling a Business

Photo by Serhii Bondarchuk

We remind everyone we work with that a business transaction is a marathon, not a sprint, and just as with a marathon, there are pitfalls waiting for you at every stage of the journey. Today, we’ll examine a few.

Beginning

At the beginning of a marathon you’re looking to establish the pace that you’ve been practicing for months. You have an expectation of how long this journey is going to take. But this calculation only makes sense if you have been preparing for months: eating properly, putting in the requisite number of miles per week, and having hydrated and slept well in the last few days before the race.

In our world, this will have meant getting your valuation right and making sure your business has systems in place to be handed over to a new owner.

Frequent pitfall: valuation. “Well, my accountant says my business is worth Z.” We come to find out that the accountant has valued this Main Street business like a Fortune 500 company and is offering a 5 or 6X multiple on a business that would stretch to be a 2X multiple.

Remedy: go into the valuation without expectations or emotion. If it’s not worth what you want or think it should be, we can help you with ideas to make the business more valuable and give you a timeline to reach your goals (or tell you that your goals are not realistic given your business). But what we won’t do is assist in delusional valuation or expectation.

Middle

Halfway through the race you might be cruising, or you might be having a tougher time than you thought you would. The goal should be to maintain pace and realize you’re only halfway through. That’s a big win: half the race is behind you. The other side: you have to keep going to finish.

Sometimes the reality of the sale can be too big for someone.

Frequent pitfall: nerves. We will start to hear things like, “the commute is too far,” or “I don’t know if we can afford this.” Firstly, you’ve known the address since the beginning, and after a meeting or two, you made the offer to purchase, so this is not the real issue, and secondly, if the bank says you can afford it, you can. Don’t let the nerves overawe you.

Remedy: We don’t want to force anyone to buy something they don’t want to buy. But go back over why you started this whole process in the first place. Ask yourself what’s changed. If nothing’s changed, it’s just a question of nerves, and we’ve seen that plenty of times. We’re here to talk through that, if you’re willing to admit that’s what you need.

End

You’re in your final few miles. So much of the race is behind you. In fact, you can’t believe you’ve made it this far. You’re enjoying the endorphins that come with a runner’s high.

The only thing that can derail us now would be something unexpected.

Frequent pitfall: failure to disclose. The reason we talk about this so much is that we’ve seen it happen so frequently. People, intentionally or not, don’t disclose a key item they need to help close the deal.

Remedy: Sometimes, someone had a charge-off 10 years ago, so it’s not showing up on a credit report. The wrong thinking is, “It’s not on my credit report, so it never happened.” The correct thinking is: “Disclose even though it’s not on the credit report.” People don’t realize banks have access to systems that show things that are not on credit reports, so you will be applauded for sharing necessary information. No banker will ever be upset that you disclosed something from your financial or personal past that could have any bearing on the deal.

These are just a few pitfalls that can cause you to stumble on your business transaction journey. Call us today to learn about other ones.