The Nine Money Losing Mistakes You Don’t Want To
Make When It Comes Time To Sell Your Arizona Business!
The difference between a profitable, smooth transaction and a miserable experience is often a fine line. The majority of business selling nightmares are caused by a lack of knowledge. The following list is designed to make you aware of big mistakes people make and how to avoid them.
1. Choosing the wrong time to sell – Timing is everything. To get the maximum amount for your business, you need to sell when things are going well. Too often I get calls from owners when it is too late. Their sales and profits have been going down and they want out. This is a huge red flag for potential buyers and the sale usually goes nowhere. Along these same lines, I get calls from relatively new business owners, in business under three years, who aren’t making any profit yet, but the owner claims the business has all kinds of “potential”. The buyers who come to us want a proven business that’s making money, not a business that just has “potential”. A bank usually won’t loan a buyer money to acquire a business unless that business has been operating for at least three years and is making enough profit to service the debt and pay the owner a decent salary. Also, not only does the buyer have to qualify for a loan, but so does the business.
2. Keeping poor books & records or no books & records at all – Potential buyers will want to look over “the books” before they will buy a business. This will give them a clear picture of how the business is doing and will give them the confidence to part with their money. Plus, quite a few buyers will have to get a loan to buy a business and the banks absolutely won’t lend money without seeing “the books”. It’s very important that your internal Profit & Loss Statements match the tax returns you file with the IRS; if they don’t, a red flag goes up. If you aren’t a good bookkeeper, there are lots of companies and/or computer programs that can help you out. It is essential to have financial information that can be easily understood and verified by the potential buyer. Also, I need to look at the financials myself so I can tell you what your business is worth in today’s market. I need to see three years tax returns, Profit & Loss Statements and Balance Sheets in order to do my analysis.
3. Having unrealistic price expectations – Just like when a Realtor prices a house, I also use comparables (comps) to help set a price. If the price is too high, it can scare off potential buyers and your business may just sit in my listing inventory and get “stale” or may never sell. If the price is too low, you lose out because you’re leaving money on the table. I use several factors before coming up with what you can realistically expect to get on the open market. Unfortunately, sometimes the amount you want, or what you need, doesn’t match the current value of your business. And last, but not least, watch out for “outside advisors”, be it your accountant, your lawyer, your brother-in-law, or someone else looking out for you who tells you what they “think” you should get for your business. I’ve heard some really wild prices, sort of like what the dot.coms were getting years ago, and boy are they way off target. Unless your “outside advisors” are involved in the buying and selling of Phoenix businesses on a daily basis, listen to them with a grain of salt.
4. Getting emotional – Now how can that be a mistake? Believe me, emotions can and do cause problems. Selling your business can be one of the most nerve racking, exhausting experiences of your life. Last minute calls, inconvenient “showings”, price adjustments, and the uncertainties of being stuck with a business that doesn’t sell for months on end can take there toll. Also, “seller’s remorse” can scare you into not following through on your initial plan to sell. If you pull back, you may lose the one and only qualified buyer to come along. Plus, some buyers will try to get you to sell at a lower price, (you can’t blame them), and you may feel insulted. Don’t. Do you always pay the full asking price for a product? Probably not. The main thing to remember is that before you decide to sell, be absolutely sure that this is what you want to do and then keep reminding yourself of all the reasons why you’re selling.
5. Choosing a Phoenix Business Broker who suggests the highest listing price – This is the oldest trick in business sales. The old bait and switch scam. The unscrupulous broker will tell the seller what they want to hear, compliment their business, and agree to list their business at an unrealistically high price just to get the listing. Then, after they have the listing for a few weeks or months, and are not getting any serious activity, they will start telling the seller they need to reduce the price. I don’t play those types of games. I provide a well-researched valuation to determine the true realistic price that your business will sell for in today’s marketplace. The decision of which broker to list your business with and what price to ask for it are two completely separate decisions. Select your broker based on your comfort level with them and then decide on the price. Never select a broker based solely on the price they suggest.
6. Choosing a Phoenix Business Broker who quotes you the lowest commission – You get what you pay for! Your business is in competition with all of the other businesses on the market for the best and most qualified buyers. You need an aggressive, proactive business broker to get your business sold and for the highest price possible. Marketing costs such as photos, ads, web sites, printing, direct mail, etc., are vital to getting the results you want, but they are all expensive. I invest heavily in marketing. Will a “discount” broker offer a complete marketing campaign? Hardly! Most of these “discretionary” expenses are the first to be eliminated when the brokerage fee is negotiated downward, although most of the time without the knowledge of the seller. These “discretionary” investments are some of the most important for getting the desired results. I’m a professional, just like you, and it’s my job to handle all of the parties involved in the transaction. Finding a buyer, dealing with accountants, attorneys, escrow agents, and countless other things take a tremendous amount of time and effort. Plus there is an art to keeping things running smoothly. I have a lot of experience in this area and the commission I charge is more than worth it. Also, other business brokers will be more likely to show their buyers businesses that pay a higher commission. With a “low” commission, you may be getting just what you pay for and not what you deserve. Remember, Quality is remembered long after price is forgotten.
7. Trying to sell your business yourself – I’ve heard many a sad tale in this area. There are really a lot of legal issues to deal with besides trying to attract just the right buyer. Marketing your business, without your employees catching on, trying to negotiate the highest and best price for your company, and trying to run the business at the same time is a daunting task. Let me help you. I’m experienced in this area and it’s best to go with a person who does this for a living. Plus, I can empathize with you because I’ve personally been through this experience when my business was sold. Fortunately, I had a Business Broker handle the transaction.
8. Listing with an Out-Of State Business Broker – Because the phoenix metro area is a hot market, a lot of out-of-state business brokers advertise here to try to get listings. There are two problems with this. One, to get the best service possible, you need to hire a local business broker who knows the local market and can be available for face to face meetings with potential buyers. Two, to legally sell a business in Arizona, a business broker is required to have an Arizona Real Estate License. A lot of out-of-state business brokers are not licensed in Arizona and are therefore breaking the law. How ethical do you think these business brokers will be when dealing with you if they won’t even follow the law?
9. Listing with a Business Broker who will not co-broke – As a member of the Arizona Business Brokers Association, I am happy to co-broke with my fellow members and any other licensed business broker in town. Some business brokers in the Phoenix Metro area refuse to co-broke because they want to hog 100% of the commission for themselves. I believe the first duty of a business broker is to sell their clients business, not maximize their commission. Business brokers that don’t co-broke cheat their clients out of the resources of a large pool of business brokers in town who have ready, willing and able clients who are looking for a good business to buy.