Selling a business can naturally raise concerns and misunderstandings, especially since many owners are experiencing this process for the first time.
Over the years, we've encountered numerous myths and misconceptions from business owners about selling their companies. Engaging in one-on-one discussions helped alleviate their worries and provided a clearer understanding of the selling process.
We want to ease your worries. In this article, we'll clarify some common myths about business sales that we've heard through our experience.
Let's get started.
Misconception #1: A Good Business Will Sell Quickly
Reality: A good business does not guarantee a quick sale. While having a profitable business is attractive to buyers, the selling process involves numerous factors, including market conditions, the economic environment, and finding the right match for a buyer. On average, selling a business takes between 7 to 12 months, and it often involves multiple rounds of negotiation with different buyers before a deal is finalized. The selling process can extend even longer for various reasons, such as setting an unrealistic price, inadequate marketing, worsening financial performance, or an owner's reluctance to make the necessary effort to complete the sale. It's important to be patient because rushing can result in a bad deal or selling for less than it's worth.
Getting a business ready to sell takes a lot of work. You need to ensure all your financial records are clear and the business looks appealing to potential buyers. Business owners should prepare their business for sale well before listing it on the market to address any issues that might lower the business's value or slow down the sale.
Misconception #2: Buyers Will Dismiss Current Employees
Reality: Many business owners worry that new buyers—whether individuals, strategic acquirers, or private equity groups—plan to replace current employees with their team. Although there are some stories of this happening, it's usually not the case.
Buyers recognize the crucial role your employees have played in your business's success. They are also often unfamiliar with running your specific business or the industry itself, and they understand that finding skilled, reliable employees is extremely challenging.
Therefore, it's unlikely that buyers would want to dismiss the very people who have been instrumental in building your business. In most instances, there won't be a widespread layoff of your employees following the sale.
Misconception #3: Price is The Most Important Factor in a Sale
Reality: While price is undoubtedly a key aspect of any business sale negotiation, it's not the only important element. Numerous other terms and conditions involved in finalizing a deal can significantly influence both the buyer's and seller's perspective on the price. Terms of the sale, such as financing arrangements, earn-outs, and transition support, are important in negotiations. Sometimes, a lower offer with better terms and faster closure can be more appealing than a higher offer with stringent demands.
In negotiations, understanding the buyer's priorities and creating a deal structure that addresses those needs while protecting your interests can lead to a successful sale. Flexibility and willingness to negotiate terms can make your business more attractive to buyers.
Misconception #4: No Need to Train the Buyer
Reality: Even experienced entrepreneurs will require some training and support to understand the unique aspects of a new business. Sellers must be prepared to spend time training the buyer during the transition period. This support can range from a few weeks to a year, depending on the complexity of the business and the buyer's experience.
Providing comprehensive training and support not only helps preserve the business's legacy but also assures buyers that they will not be left to manage unfamiliar challenges alone. This assurance can make a business more attractive to buyers and can even command a higher selling price.
Misconception #5: Brokers Make Selling Effortless
Reality: While hiring a business broker can relieve some of the burdens of selling a business, it does not eliminate the seller's involvement in the process. Brokers facilitate crucial aspects like marketing the business, identifying prospective buyers, and negotiating terms, but a seller will be involved in the process. You'll handle numerous phone calls, meet potential buyers, organize business documents, and consult with attorneys and CPAs. Additionally, you'll need to be available to answer questions during the due diligence phase, and likely help train the new buyer on how to run your business. All these tasks must be managed while keeping your business running smoothly to maintain buyer interest.
Additionally, the right business broker should understand the industry and have a proven track record of successful sales in the business's niche. Owners should thoroughly vet potential brokers, understand their services, and establish clear communication and expectations from the outset.
Misconception #6: Selling to Family or Employees is Simple
Reality: Internal sales to family members or employees can sometimes be more complex than selling to an outside buyer. Emotional attachments and pre-existing relationships can complicate negotiations and result in unfavorable terms. Furthermore, family members or employees may lack the necessary funds or management experience, leading to additional challenges and financial arrangements.
If considering an internal sale, it's crucial to approach the process with the same rigor and professionalism as you would with an external buyer. This includes obtaining proper valuations, preparing legally binding sale agreements, and possibly arranging training or financing options.
For more information on business valuations, check out our blog post "How to Value a Business."
Misconception #7: Immediate Retirement Post-Sale
Reality: Many business owners look forward to retirement post-sale, envisioning immediate relaxation and disengagement from work. However, most business sales include transition periods where the seller remains involved to some degree. This period is important to help the new owner get used to how the business works and to keep the business running smoothly.
Furthermore, it's common for sellers to continue working in the business for several months or even years after the sale. This helps the buyer feel more secure about taking on the risks associated with the acquisition. For this reason, sellers need to enter the market while they still have the willingness and energy to contribute to the business post-sale. If you're in a position where you cannot stay involved during the transition, be aware that this could affect the final selling price, as it increases the perceived risk for the buyer.
Misconception #8: I Can Sell My Business Myself
Reality: Some business owners think they can manage the sale of their business alone to avoid broker fees. However, selling a business includes complex challenges in law, finance, and negotiation. Professional advisors are crucial in navigating these areas, avoiding mistakes, and securing a better deal.
Hiring experts like brokers, accountants, and lawyers offers the guidance and support needed to effectively handle the complexities of selling a business.
Misconception #9: There's No Need to Keep the Sale a Secret
Reality: Keeping the sale of a business confidential is very important. If the sale becomes known too soon, it could unsettle suppliers, customers, or competitors, creating uncertainty that might lower the business's value.
Using nondisclosure agreements and keeping negotiations private is essential to safeguarding the business until the sale is complete and can be announced properly.
Misconception #10: Selling My Business Will Lead to High Taxes
Reality: Some business owners worry that selling their business will result in low profits due to heavy taxes. However, with the proper planning and strategic financial advice, it's possible to minimize the tax impact of a sale. Strategies might include choosing the right time to sell, making changes to the business structure before selling and using tax-efficient investment methods.
Getting advice from a tax advisor early on can offer valuable insights and help maximize the financial outcome of the sale.
Misconception #11: Strategic Buyers Always Pay More
Reality: It's often believed that strategic buyers who may want your business because it fits well with theirs will always pay more. However, this isn't always true. Financial buyers, like private equity firms, can also make strong offers, especially if they believe they can grow the business or make it run more efficiently.
Understanding the different types of buyers and what drives them can help you find the right buyer and get the best terms when you sell your business.
Misconception #12: Selling My Business Won't Affect Me Emotionally
Reality: Many people believe they won't feel emotional when selling their business, but this is rarely the case. The reality is that selling your business can stir up a range of unexpected emotions.
Your business isn't just a company; it's a big part of your identity. Your employees often feel like a social circle, and you've invested years into building your business. It has brought numerous rewards to you and your family, and you've likely grown very proud of your achievements. Letting go of this significant part of your life will not be easy—and that's completely normal.
Prepare to Sell Your Business with Confidence
With these common misconceptions cleared up, you can confidently plan your business sale. If these myths have sparked your interest, it might be the perfect time to seek a consultation.
Starting your sale preparations is incredibly beneficial. Consulting with Sunbelt Texas can give you deeper insights into what selling a business involves.
Contact us today to learn how to prepare for your business's future sale effectively.
FAQs
What is the most common misconception about selling a business?
Many believe that a profitable business will sell quickly. However, various factors, such as market conditions and finding the right buyer, can extend the sale process.
Will the new owner immediately replace my employees?
Contrary to popular belief, most new owners value the existing staff's experience and would prefer to retain them to maintain business continuity and success.
How can I prepare emotionally for selling my business?
Acknowledge that selling your business can be an emotional journey since it involves parting with something you've built and grown. Consider seeking support from peers, a therapist, or a coach who specializes in business transitions to navigate this process.
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