Avoiding the Pitfalls of Selling a Business
As I’ve been in the Broker world for the past 3 years I’m amazed at how many people do not know who to call when they need to sell their business. Often people go to a reputable real estate agent to sell a business which can prove to be a huge mistake. Real estate agents are not necessarily the best people to use to sell a business because selling a business is VERY different than selling commercial or residential real estate in the following ways:
- Books and records are thoroughly examined when selling a business.
- Due Diligence is required for selling a business and is more intensive.
- Lease/landlord involved in selling a business, but not in real estate.
- Legal issues are more complex with a business.
- Earnest money is handled differently.
- Earnest money is generally fully-refundable when selling a business.
- Liability of the Sellers is different.
- Seller Training is done when selling a business and not real estate.
- Non-compete agreements are an integral part of selling a business but not real estate.
Because of these reasons, business owners can put themselves at risk by hiring the wrong professional. Common mistakes that I’ve seen are
- Using a residential real estate agent to sell a business when he/she does not have experience selling business.
- Using a commercial real estate agent who does not specialize in selling businesses or mergers and acquisions thinking all commercial agents can sell businesses.
- Putting up a sign at the business that it is for sale.
- Advertising the business for sale.
- Failure to screen buyers.
- Lack of experience selling businesses.
I’d like to elaborate on a couple of the above mistakes because they can be very costly. Putting up a sign that a business is for sale is like saying: “we are going out of business”. It can immediately cause sales to plummet. Customers do not want to do business with you and if they do, they want a discount. It also hurts morale of the employees because it instills uncertainty in their minds about their jobs.
So, how do you avoid the pitfalls mentioned above?
- Hire a professional Business Broker or Mergers and Acquisition Professional to sell your business.
- Ask for references and check references.
- Ask questions about the experience of the broker. Be specific and ask for specific examples of his/her experience selling businesses similar to yours.
- Read the Listing Contract carefully before signing. I would not recommend signing a Contract that has an automatic renewal clause in it. This can come back to haunt you.
- Ask for a 30 day notice to be let out of the contract if you are not happy with the service the Broker is providing
Selling a business is an important transaction and the bottom line is you want to hire the best person you can to help you or it will cost you money….sometimes a LOT of money.
Rick is a Principal with Business Sales Group. He brings a unique blend of sales, entrepreneurial, and financial experience to every business he sells. He began his career as a CPA, working in Nevada and Utah where valuable financial experience was gained. He uses those skills every day. He graduated with a Master’s of Science Degree and Bachelor’s Degree from Utah State University. As a business owner he started Liberty Mortgage, a mortgage bank licensed in 23 states nationwide. He eventually sold the successful company to an investor from California. He has been helping people sell their businesses since July, 2010. During his first year as a business broker with BRC, he listed and sold more businesses than the entire office combined.
As a sale-side advisor for Mergers and Acquisitions transactions he brings a unique blend of financial, advisory, accounting, and management skills to the table helping sellers maneuver the intricate details of the deal through closing.