Avoiding Business Sale Errors: Valuation and Preparation

As a business owner in the process of selling your company, you naturally want to to everything you can to help the process flow smoothly and work out as desired. This involves a few different concepts, one of which is staying far away from some of the common errors we see sellers make in these circumstances.

At Utah Business Consultants, we're here to help our clients avoid these kinds of mistakes and put them on a positive path to a productive business sale. What are some of the most common errors we've seen made through the years, and how can you be sure to steer clear of them? This multi-part blog series will go over a number of concepts.

Improper Valuation

Perhaps the single most common mistake we see during business sales, and one we offer specific business valuation services to combat: Setting the price too low. It's easy to see why this happens—sellers are looking for the best possible deal, and don't want to overprice their company for fear of scaring away buyers.

The downside is that by undervaluing your business you're essentially asking buyers to offer pennies on the dollar because you haven't adequately conveyed its true value. Even if you don't end up setting the price too low, buyers will still know that you're not willing to negotiate on certain topics (price is always one), and this can cause them to seek out business owners who are willing to negotiate harder.

By the same token, sellers should never inflate their company's valuation either. Setting your price too high will immediately turn buyers away, not just because they won't be willing to pay that much but also because there's the chance that it could start a bidding war. This can drive up the final sales price, but it will require multiple potential buyers and take more time than you're probably interested in.

Improper Preparation for Sale

Selling a business involves several areas of preparation, such as understanding your company's true value, understanding buyer psychology, and crafting an effective sales pitch. If you rush the process or neglect one or more of these areas, then it can lead to a lower price tag, longer sale timeline, or both.

One of the most important steps in preparation is to make sure you keep all documentation regarding your business up-to-date and organized. This includes everything from your company's financial statement and employee contracts to its online presence and other technology tools.

Another common mistake we see is rushing the sale preparation stage, as if a quick turnaround will help you get it out of the way as fast as possible. But if done properly, the sale process can take months or even years. It's certainly not something to rush through, and rushing can actually increase your chances of making a mistake that will cost you money.

For more on avoiding common business sale mistakes, or to learn about any of our business valuation, exit planning or other business sale services, speak to the staff at Utah Business Consultants today.