Sell Your Business the Right Way (Don’t Make These Mistakes)

Exit planning is just what it sounds like: planning. Go into a potential sale of your business prepared, and with a team to help you, and you could walk away in a much better position.

By H. Dennis Beaver, Esq.

published 3 December 2021

in Features

(Image credit: Getty Images)

“My father, ‘Paul,’ is in a real panic over the sale of the carpet and home furnishing stores in the Pacific Northwest our family has operated for many years. He is 82, in good health physically, but fears the economy is about to turn sour and wants out of the business,” the email from “Dora” began.

You’ve Just Sold Your Business for Millions. Now What?

“We have noticed a decline in his emotional ‘reserve’ when small problems arise in the business. He avoids dealing with them and caves in, for example, if a customer refuses to pay the balance of their bill. Inventing some artificial excuse, Dad just writes the balance off.

“Now he is negotiating the sale of the business with a potential buyer, and we are afraid of his feeling forced to take far less than what is fair. What do you recommend?”

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Do not give in to the fire sale mentality

I ran my reader’s question by a pair of Southern Florida-based wealth advisers, Christopher and Michelle Mackin, a brother-sister team specializing in exit planning.

“This is a common problem we are seeing more often with our country’s aging population,” said Michelle Mackin. “A seller’s fire sale mentality is something that family members need to be aware of.”

I asked them to list what business owners often do wrong when it is time to sell.

Christopher: Fail to properly prepare for the sale

When you don’t prepare, it is likely you will not obtain as much money from the sale as what was anticipated. In part what leads to this is by failing to meet your “earn-out goals” if staff does not continue to perform as before.

Earn-out-goals are what the business must reach during a specified period of time and are different from the sale price.

Even with a firm price in hand, full payment is often subject to the enterprise having met certain financial targets. If these targets are reached, then the final payment is made.

We must not forget that proper preparation requires organizing your books and records, keeping taxes current, having addressed any pending litigation, and, importantly, being sure your staff will remain and want to see continued success.

Michelle: Go about selling your business alone without assistance

Without sell-side advisory support, you will likely not be able to maximize the dollar value of the sale. You could be conned out of your business!

Going it alone subjects sellers to unknown risks. A sell-side adviser digs into issues that can impact market value, as well as potential traps — litigation, things the seller might not even think of discussing with a buyer.

Sell-side advisory support includes:

An attorney who is experienced with mergers and acquisitions;
A business valuator;
An exit strategy adviser who oversees sales team members;
Possibly an investment banker, or business broker.

Christopher: Fail to know the number that you need from the sale

Lacking sufficient capital from the sale, you may not be able to sustain your lifestyle, have the retirement you had envisioned nor the funds to pursue a new chapter in your life.

Closely related to not having a concrete amount in mind is selling in a panic due to sudden health issues or death. This situation is a welcome mat to being conned.

Whenever possible, time to consider various options is your best friend.

Michelle: Advertise the sale of your business

If your customers see that your business is up for sale, will they continue doing business with you, likely afraid you are leaving?

Instead, work with a business broker who keeps things confidential and not broadcasting the planned sale to employees. Bluntly stated, you need to keep your mouth shut!

Business brokers have a network of buyers who they will reach out to and use non-disclosure agreements. This way, the world will not know you are selling — rather, only those entities that might have an interest in buying your business will be contacted.

Christopher: Assume that all buyers are qualified

Without doing your due diligence, the sale could fall through! You would be back at square one. Buyers must be pre-qualified for financing and have access to the funds they need for the purchase.

There are red flags that you must not ignore. For example, if the sale is contingent on other things happening, or the acquiring company says they can get financing as long as they meet a certain target. Hearing, “We’ve got it covered no problem,” but you have not been provided documentary proof.

This is why you need sell-side advisory support, where, for example, their attorneys will work with your lawyers and provide documentation proving they are ready to close the deal.

Michelle and Christopher: Failing to understand that seller’s remorse is common

You are selling something you have worked your entire life to create, so it’s only natural. Try to shake it off. Embrace where you are, what you have built and envision a future separate from your life’s accomplishments, which are now moving into the hands of someone who will take them to the next level.

Bias at Work: How to Defuse a Ticking Time Bomb in Your Organization

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

TOPICS

After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, You and the Law. Through his column, he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."