Many business owners think that selling a business is like selling a house. They put a price on the business that they think it is worth, they increase it to have room for negotiation and they start looking for buyers. If a buyer comes with an offer, they negotiate to the last penny to get the maximum price. A motivated buyer facing a lack of information on the business is tempted to reluctantly accept any price and put a conditional offer on the business that satisfies all the seller’s demands. The buyer’s reluctance creates some negative emotions early in the relationship. Naturally, the buyer will put a very broad condition on the offer to protect him/herself. Such Conditions include satisfactory due diligence, buyer satisfaction with the business financial records, tax fillings, profitability, level of sales at his/her own discretion. The buyer is willing to pay the price asked for only if the business matches the perfect image painted by the seller. This very rarely happens. Most businesses are imperfect and most sellers overstate the magnificence of their businesses.
Unfortunately, when the buyer starts his/her due diligence, they discover the imperfections and start having second thoughts. The negative emotions initially developed flourish and the relationship comes to an end. At the end, the seller has wasted tremendous time and effort explaining his/her business to the buyer, the market interprets this failure as a negative signal about the business, which makes it a very hard sell in the future. This is a scenario I have seen frequently as a business broker and I believe it could be avoided.
Selling a business is definitely not like selling a house. After a buyer has seen a house, he/she knows a lot about it, a simple home inspection and some lawyer due diligence can easily show imperfections, so buyers make informed decisions when putting offers. Houses sell much more easily than businesses and don’t stay as long in the market. Businesses on the other hand are much harder to sell and finding the matching buyer takes longer. Furthermore, business buyers are in the dark when they make offers. Because of confidentiality reasons, sellers won’t give away much information about the business before the buyer shows his/her seriousness by putting an offer. For these reasons, negotiating the purchase price for a business should not be very tight. Buyers and sellers should both feel they made a good deal with no hard feelings from any party. This is because the actual sale doesn’t happen at the time of the offer negotiation but happens only after due diligence
Another mistake frequently made by sellers is renegotiating the business broker’s commission right before accepting an offer. This is very wrong again because the actual sale happens at the end of the due diligence. The broker’s enthusiasm and energy are so necessary to help the transaction happen and solve all the emotional problems between sellers and buyers. When the broker is upset because they had to cut their commission, their heart is simply not in the transaction anymore. They focus on transactions where sellers kept their word and/or contractual commission agreement.
When all the previous mistakes are made, the result is almost certain: the deal doesn’t close. The seller and buyer have wasted their time, effort, money on lawyers and accountants and the business is not sellable anymore.
Therefore, to be successful in selling your business:
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Put a reasonable price on it.
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Find the right business broker that your can trust.
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Agree with the broker on a commission everybody feels is fair.
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