sell your business

The Top Five Mistakes Entrepreneurs Make Trying to DIY the Sale of Their Business

As an entrepreneur, you successfully negotiate with suppliers, customers, and employees all the time. When it comes time to sell your business, you may naturally feel inclined to try to sell your business yourself. If you choose to go down this DIY path, beware – this path is fraught with considerable risk. Here are five of the most common mistakes we see DIY sellers make.

Mistake #1 – Misjudging Exit Alternatives and Timing

DIY sellers often lack a deep understanding of market conditions and the optimal timing for a sale, leading to missed opportunities or undervalued offers. When business owners think of exiting, they typically assume they will transition business to their kids (increasingly unlikely), sell to a competitor (low-ball offers) or wind down (fire sale). There are many other alternatives that many owners don’t consider, such as selling to employees through an Employee Stock Option Plan (ESOP) or selling partial equity (typically 60-80%.) This can be ideal for sellers who are interested in staying involved, as it creates liquidity, reduces the owner’s stress, risk, and responsibility, and allows the owner to benefit from the investor’s capital and professional management capabilities. If the new investor succeeds, the seller’s equity could be more valuable than proceeds from the initial transaction (‘second bite of the apple.’)  

Lesson: Explore all exit options before going to market.

Mistake #2 – Overestimating Business Value and Terms

Sellers’ valuation expectations are often disconnected from reality as they tend to overestimate the value of their business due to emotional attachment or lack of market knowledge. Before going to market, sellers must consult with an experienced M&A firm who will normalize financials to properly reflect adjusted cash flow, provide data on comparable company sales, and provide guidance on probable deal terms. Sellers must appreciate that buyers assess value across quantitative (financial) and qualitative (team, industry trends, etc.) dimensions. Don’t waste your time pursuing a sale unless you’re comfortable accepting probable market value and terms. Before Kinected accepts a client, we ensure that all three “legs of the stool” are well-supported: the business is performing well, the owner is financially prepared (can afford to sell), and the owner has a personal post-retirement plan.

Lesson: Get an Opinion of Value from an M&A professional as part of your initial Exit Plan

Mistake #3 – Targeting the Wrong Buyers

You know your business better than anyone, so you may assume you know your perfect buyer, usually a competitor. You may not realize that there could be several potential buyers willing to compete to buy your business. Fixating on one buyer/type limits your options. Having an M&A advisor target an expanded buyer pool including strategic and financial buyers increases your probability of a successful sale and creates leverage. When you have only one buyer in play, that buyer feels no pressure to keep the process moving or pay a premium. This is why we commonly say, “When you have one buyer, you have no buyers.”     

Lesson: Run a process targeting both strategic and financial buyers

Mistake #4 – Lack of preparation, specifically around financials

Most entrepreneurs with revenues under $25M don’t see a benefit in strong financial reporting. They run their businesses by gut feel. If there’s sufficient cash in the bank, all is fine. Most engage low-cost bookkeepers who perform basic tasks—entering transactions in QuickBooks (sometimes correctly), doing monthly bank reconciliations, and providing just enough detail to file the tax return. Sure, business owners can “get by” with unsophisticated bookkeeping but trust me on this—low-caliber recordkeeping will prevent you from selling your business for anything approaching fair market value. If you want a premium valuation, you must present your books so the “real” earnings can be validated by buyers. Because buyers of $5M–$50M companies usually value businesses on a multiple of earnings, earnings are the most scrutinized element of any deal.  Before we take a company to market, we insist the seller engage a third-party CFO/CPA for an independent review. This financial pro will come in on a part-time basis and bring invaluable industry and M&A expertise to the review process. 

Lesson: Ensure your financials are ‘bulletproof’ before going to market – preferred to a busted deal due to misleading/incorrect financials.

Mistake #5 – Poor Negotiation Skills and Emotional Attachment

As an entrepreneur, you feel confident in your ability to negotiate favorably with suppliers, customers, and employees. However, selling your business is very different, requiring specific skills and experience that DIY sellers often lack. On the other side of the table will likely be a professional buyer who has completed several dozen transactions and negotiates deals for a living. Without the support of an experienced M&A team, who will ensure the deal is negotiated properly, the cost of making a mistake or the value left on the table can be substantial. While you would prefer to not pay the fees to retain a deal team (M&A advisor, transactional attorney, and CPA/CFO), I can assure that these professionals will pay for themselves many times over in terms of the additional value they bring. 

Lesson: Just as your surgeon, pilot, or electrician would tell you, sometimes you need to trust professionals.

Selling a business is a complex and emotionally charged process that requires specialized knowledge and skills. While the DIY approach might seem appealing to save on costs, the potential risks and pitfalls almost always outweigh the benefits. By engaging professionals and taking a well-planned approach, you can maximize the value of your business and ensure a smoother transition.

As you consider selling your business, we encourage you to speak with an experienced M&A advisory firm that will help increase the odds of your transaction closing successfully. Kinected Advisors has an 87% success rate in our transactions, well above the industry average of 30%.
If you aren’t ready to sell, Kinected has created an exit planning service called ExitBoost™ where we provide a baseline valuation, benchmarking analysis, salability scorecard and periodically update until you are ready to go to market. Based on successfully helping other clients increase their valuations by 20-140%, we are confident we will add value along the way and make your business more salable for when you and the business is ready.  We would love to speak with you about getting you the best possible deal for your business.

Kevin Berson

Kevin Berson

Mergers and Acquisitions (M&A) Advisor | Business Broker

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