Selling a business can be an overwhelming experience, but it doesn't have to be. Unfortunately, there are some common myths that exist regarding selling a business that can scare or confuses potential buyers and sellers alike. In this post, we're debunking these myths to remove confusion and help make selling your business as smooth as possible.
My business is sale-ready
It's a common misconception that your business must be perfect in order for it to sell. That it must be at it’s peak and if you’ve experienced any difficult stretches you need to pull yourself out before you sell. Many buyers are willing to take on a challenging business and turn it around or grow it. So, you don't wait for your business to be "sale-ready" before looking for a buyer. If you are honest with yourself and come to the realization that you are at a point where you are no longer willing to expend the time, energy, and money to grow the business, then your business is likely worth as much as it will ever be worth. And it’s probably a good time to consider selling it.
My business will sell quickly
One of the most common misconceptions about selling a business is that it will happen quickly. For example, we talk to landscaping or outdoor related businesses all the time that want to focus on closing out the season in the fall and then they want their business to be sold before the next spring. The process can sometimes take anywhere from say 4 to 12 months depending on the business. We need to evaluate the value of the business, get it listed and then find a good buyer. There is time for negotiations and due diligence following the identification of the buyer. Then there is usually a training and transition period. So if you add that up, it might take longer to sell your business and for you to no longer be associated on a day to day basis than you think. We always advise that if you would like to not be doing what you are doing today, one year from today…. the time to start selling your business is now.
I'm sure to get my asking price
When you've decided to sell your business, it's important to have realistic expectations. Many business owners believe they will automatically get their asking price when they put their business on the market. However, this is often not the case. There are many, many more good buyers then there are good businesses to sell in the current market. But those buyers and their banks have limitations on what they perceive your business to be worth.
Several factors will affect the sale price of your business, including the current market conditions, the size and type of business, and the company's overall health and profitability. We do sometimes see situations where a business does not sell for the original asking price. We encourage a seller to list their business when they are truly ready to move on to whatever the next big adventure is and we will help find the absolute best buyer and highest price we can. But sometimes that requires a little bit of negotiation from both sides.
The buyer will take care of financing
While it's true that buyers will often secure their financing for a business purchase, we always prefer to have banks pre-qualify a business prior to listing it and we want to guide the buyer’s bank decision to a banker that we know can offer competitive financing and get the deal done. Too often buyers waste everyone’s time working with a bank that is inexperienced as they rely on a past relationship. We want to connect the buyer with a proven banker that has seen the business and is ready to get started right away.
In some cases, a buyer or a buyer’s bank may request some seller financing. Seller financing can be an effective tool to help you sell your business for the highest price possible. Usually, it includes a significant down payment and then potentially some portion of bank and seller financing for the balance. Once a good, solid, reliable buyer has been identified a qualified business broker can give the details on the best way to structure that financing and help you protect your interests.
I'll get a higher price next year
It is an excellent market right now. That much we know. But it's a common misconception that businesses are automatically worth more the longer they're in operation. The value of your business is based on several factors, including profitability, growth potential, and the current market landscape. There is no guarantee your business will be worth more next year even if you have higher sales. In fact, as a small business owner you know there can always be new, unexpected challenges that arise year in and year out. Current struggles have been with labor, cost of goods and supply chain to name a few. What will next year bring? The nature of small business is that it always has inherent risk.
If you're considering selling your business, it's important to get professional help to assess the current value of your business. Our business brokers here at Transworld can help you understand what your business is worth and how to maximize its sale price.