Common Myths About Selling A Business

Very often their beliefs have come about due to well meaning accountants, bookkeepers, business coaches, friends and sometimes the media. It's not that anyone is trying to mislead the business owner, it's just that certain common myths have developed over time. If these are NOT addressed early on, the sale process will be a scary roller coaster ride.

Want to fast track your learning on buying and selling a business? Then check out my next half day workshop on Everything You Need To Know When Selling or Buying a Business But Didn't Know To Ask

Back to the roller coaster. It doesn't need to be like that if the seller understands and addresses....

What are those beliefs and myths about selling a business?

1. I’ve had my business for 30 years so it must be worth $millions

WRONG! Whilst longevity can be a positive factor it doesn’t affect the market value very much. It may help to make a business more attractive to a buyer and therefore easier to sell. On the other hand it can also be a negative if the business hasn’t kept up to date with the market or kept its systems updated. Sometimes a business accrues a lot of unsaleable stock or just hasn't completed a "real" stocktake for years. Things get carried forward on the financials and don't get updated. Depreciation schedules become out of date. Beware of 'bad habits' that creep in to a business over time. Get some external eyes to have a look at it and clean things up.

2. My accountant says my business is worth 5 times EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)!

WRONG! With the best will in the world, very few accountants are able to put a market value on a business. Why not? Because they are not out there in the market place day after day selling businesses. Also, there are no set multipliers (properly called an ROI factor) and no ‘rules of thumb’ for different types of business. Yes, the maintainable adjusted net profit (sort of EBITDA) is one part of it, but the risk to that profit determines the ROI factor (multiplier). The risks can be many and varied and too many to cover here. In the case of most small businesses the value is based on PEBITDA (Proprietor's Earnings Before Interest Tax Depreciation and Amortizatio). EBITDA is used for bigger businesses that run under management. See my blog on What Is My Business Worth & Who Will Buy It?

3. It’s a waste of money engaging a broker or lawyer and using a sale agreement. I’ll just write something up with the buyer.

WRONG! A good business broker will probably be able to get you a better price for your business and do all the hard work of finding and qualifying buyers and getting things to contract stage. You then need a good lawyer with experience in business sales and settlements to write up a contract to protect both parties and avoid litigation after the sale. Dollars invested now can save you a fortune and a lot of problems post sale.

4. My business is a simple one. As long as the buyer offers me the asking price that’s all I need to agree.

WRONG! There are numerous things that need to be discussed and agreed at the offer stage. Then everything needs to be in the buy / sell agreement before both parties sign. Failure to do this thoroughly can end up in litigation after the sale. Just detailing what is 'really' included in the sale is a good start. Then there are things like owner's assistance after the sale, dead of restraint on the seller and lots more. Don't underestimate what you need to think about and include in a contract. Things like employee agreements and entitlements have to be considered. In an asset sale (99% of small business sales are asset sales) the employees will be finishing up with the seller's legal entity and starting afresh with the buyers entity. Then there is stock, suppliers, clients and physical assets. Get advice!

5. That’s it, we’ve signed the sale agreement so I can relax now and book my flights to Hawaii (or Bali or wherever!)

WRONG! The seller has an obligation to the buyer to keep running the business as they always have until settlement. Many sales fall through because of things which come out in due diligence! Sometimes the buyer will not get finance. It’s not over until the money is in the bank! If you let the business slow down and then end up keeping it …….

This is just a very small list of the things that need to be dealt with when preparing a business for sale and selling it. My role with sellers is to ask them all the questions a buyer will and make sure that the seller has all the answers, documents and is prepared mentally and emotionally. I'll be honest, most sales end up being a roller coaster ride, but let's make it a happy one!

OK, I want a happy roller coaster ride! How do I find out if my business is valuable and saleable?

Complete my Free Online Saleability Quiz and then schedule a chat with me to discuss the results.

If you are serious about selling your business (or buying a business) then attend my next half day workshop on Everything You Need to Know When Selling Or Buying A Business but Didn't Know to Ask. Click the button below for more information and to book.

Next time: Things buyers need to know but don't know to ask!