Top 5 Mistakes In Selling A Business

Online, October 1, 2013 (Newswire.com) - A Neumann & Associates has completed its deal research and announces a list of the top five business owner mistakes in selling a business.

Quite often, business owners are attempting to sell their company "on their own" once they are ready to retire. However, it's the unknown one does not know at the outset of a process, that make the very same process so difficult - often with far reaching negative impact.

"There is no question that it appears tempting to save on the fee of professionals by trying to sell the business on its own", say Achim Neumann, President A Neumann & Associates, New Jersey, "however, as the old saying goes 'good advice will cost some money - bad advice will cost a fortune'". Nothing is more true in a life transforming process as selling one's business.

"This article will illustrate some of the top mistakes, " says Michael Feite, Managing Director, Eastern PA.

Business Too Dependent On Owner

If the business owner handles all decision making himself, it will be virtually impossible to provide a smooth transition. This effect becomes even worse, if the business owner is actually
handling all sales, too. Whereas administrative functions can be successively transferred, long-term sales relationships typically take more time to transfer.

Thus, the business owner needs to start delegating responsibilities early on, and needs to develop an organizational chart for the company that provides for clear responsibility assignments.

Lack Of Proper Valuation & Tax Planning

"Amazingly, many business owners have a very sophisticated and thorough understanding for the market place of their products", says Michael Gersten, Managing Director, North NJ / Southern NY State, " but are willing to sell their company without any proper valuation in the market."

Obviously, a too low asking price will leave money on the table, however, more importantly - and unbeknownst to many sellers - a too high asking price will not only not sell a business but could ultimately compromise the confidentiality of the transaction by too many buyers having seen the business but then shying away.

And whereas a proper valuation on the front end is very important, tax planning on the back end is as important. It does a seller little good to have obtained hundred percent of the asking price, only then to turn 50% of such over to the IRS or State government.

Deal Structure

As can be seen already, deal structure is very important with respect to valuation and tax planning. More importantly, often sellers rush to the highest bidder.

However, price is most likely less important than deal structure: is A/R and A/P included? How will employee retirement obligations be treated? What assets secure the seller note? On what basis are royalties calculated, and what audit mechanism are in place? What kind of consulting and employment agreements will be put into place for the seller? Will SBA bank acquisition financing allow for a seller note pay-back?

"We can easily present a seller four deals with the same offering price, but with vastly different net receipts", say Neumann.

Hiring Your Daughter-In-Law To Do The deal

As mentioned early on, selling a business on ones own has significant risks. Selling a business is a very specialized process that requires knowledge across a variety of professions.

Similarly as dangerous is to hire a relative because "he/she is in the legal or accounting field". As in many other professions, legal or accounting has specialty niches and the mere fact that an individual is trained in one segment does not qualify them in other segments. Not to mention that one might lose the daughter in law over it!

"As a matter of fact, deals get most complicated if a seller does not have the proper advice from a transactional attorney who is specialized in business transfers ", says Feite. "again and again, business sellers underestimate the impact of not having a proper team built - for marketing the business, legal and tax advice"

One fact that is known, though: the buyer will have a top team of consultants available! Thus, a seller needs to level the playing field. Remember: you only sell your company once.

Forget To Manage The Company

Selling a business typically takes 9 to 12 months, thus, a business owner needs to recognize that he is in "for the long haul". Getting frustrated because there is no full price offer within three months, sets the seller up for a fall. The owner needs to focus on running the company at peak performance during this time.

There will be a consistent stream of demands for financials during the process - in a world that requires instant information by all market participants. Thus, books need to kept in tip-top shape. Not focusing on top performance, resulting in a drop in results will immediately trigger the buyer's desire to renegotiate the deal.

Another distraction can be professional opinions in the CPA and legal field that review each proposed structure with the sentence "the problem is..." A business owner needs to stay positive and filter such consistent negativity out in order to complete a deal.
Such approach also includes to overcome the thinking "the deal is dead". Every deal is at least three times "dead" in a transaction, and still all parties find back to the negotiation table - with the help of proper M&A advisers.

In sum, there are many aspects in selling a business with the potential for a vast number of oversights to be incurred, thus, not maximizing the receipts for the business seller. Only a highly qualified M&A firm or business brokerage organization has the long-term experience to counter such, and thus, a business owner needs to really think about what kind of transaction team he will put together selling his presumably biggest asset he has.