Key Takeaways from “7 Ways To Lose Money Selling Your Business In Texas”:
- The biggest mistake when selling
- How pricing structure can affect your outcomes
- Why timing is so critical
- Whether you should sell yourself, use a broker, or sell directly to a business investor
7 Ways To Lose Money Selling Your Business In Texas… And How You Can Avoid These Pitfalls
The decision of selling your business in Texas is not a simple one. It’s a major undertaking that requires careful planning and preparation.
When most inexperienced business owners think about selling their business, they simply think the only issue is price. In reality, there is a great deal more that comes into play when selling your business. Failure to understand these items will derail any chance of getting a quick or fair sale.
How To Lose Money Selling Your Business in Texas
Below are 7 of the more common ways business owners will lose money off the sale of their company:
1. Unrealistic Expectations
Similar to selling a house, the better your price it (and the more flexible your terms), the more likely you are to sell it – and do so in a timely fashion. If you price too high, you’ll scare off potential buyers. If you price it too low, you’re leaving money on the table.
And – if you make the mistake of listening to people outside the world of buying & selling businesses in Texas, then you’ll really set yourself up for failure. Just because someone at a barbeque told you a story about their uncle’s brothers’ sister-in-law who sold her business in a different industry for a multiplier of 6x revenue doesn’t mean you’ll be able to do the same.
Another source of poor expectations is online brokers. These online brokers work for a commission and will price as high as possible so they can make the most amount of money for themselves. Because of the commission factor, they may turn down terms that are favorable to you yet worse for their commissions. In reality, there are several factors involved when coming up with the base sales price. Unfortunately, due to many of these factors, the price that you want or need won’t match the current value of your business.
2. Poor Accounting & Reporting
Your potential buyer is going to want to go over the books before they decide to purchase your business. The reason that they want this information is to help them obtain a clear picture of how your business has performed in the past, how well it’s performing currently and what the future looks like. This information is vital to help the buyer determine the value of your business and price an offer accordingly.
Also, in many cases, a business may want to get a loan, and the buyers will have to answer these same questions for a bank in order to obtain financing for the purchase of your business.
If you’re not good at keeping up with your books, then you may want to hire someone to help you as soon as possible. Having poor accounting and bookkeeping is a big reason for potential buyers to lower their prices. The more questions the buyers have about your books, the lower their offer will become.
3. Owner Is Too Involved In The Day To Day Operations
Imagine this scenario: I offer to sell you a business that revolves around the efforts of one amazing person. This person helped bring in all the clients and still maintains a vital relationship with them, knows how to run the day-to-day operations like the back of their hand, and is responsible for making all of the major decisions for the organization. And, to top things off, when you buy the business, this key player LEAVES the organization.
What would you be willing to pay for this business? Chances are, you wouldn’t pay anything for it.
Yet you’d be amazed at how many small business owners handle the day to day operations of a business, keep all the relationships with key customers & vendors, make all major business decisions and still expect to get a large payout for selling.
A potential buyer is interested in buying systems and processes that are NOT reliant on one person. The more involved you are in relationships and day-to-day operations, the more likely you are to lose money selling your business in Texas (or in any other state for that matter).
If you’re looking to sell in the near future, then start giving your staff more responsibility today. This simple change will dramatically alter the value of your business.
4. Getting Too Emotional Over The Deal
Selling a business is a tough decision. You’ve invested thousands of hours and hundreds of thousands of dollars into the business to build it to what it is today. The sacrifices made, the family events missed, and the stress incurred to make the business what it is today is tough to put a number on.
Now, add to your personal feeling feelings for the business the fact that the process of selling your business is one of the most nerve-racking, exhausting experiences you’ll ever encounter. You’ll deal with constant price adjustments, seller’s remorse, and the fear that you may never sell the business for a fair price.
However, it’s important to keep your emotions in check. The struggles you’ve put forth have very little to do with what the buyer will pay for the business.
For example, if you’re looking to buy the house, you may have researched market place comps and have a good idea of what to pay for the house. Will you pay more simply because the owners raise 3 children in the house and have all sorts of great memories? Of course not.
The buyer of your business will not make pricing decisions based on your perceived personal sacrifices. It’s best to keep your emotions at bay because they will cause a deal to fall apart if you let your feelings get the best of you.
One of the best ways to avoid letting your emotions get the best of you is to determine whether or not you’re ready to sell your business. To find out, simply click below and take a brief survey:
5. Choosing the Wrong Time to Sell
One of the best ways to lose money when selling your business in Texas is to sell at the wrong time.
Holding on to your business too long is a common mistake that costs business owners a lot of money when selling. As mentioned in the section above, emotions come into play. People invest so much time, money & effort into a business that they, unfortunately, let those experiences cloud their judgment going forward. The failure to make a good or the right decision now based on past investments is known as the sunk cost fallacy.
Too often I get calls from relatively new business owners, in business under three years, who aren’t making any profit yet, but the owner claims the business has all kinds of “potential”. Now, everyone loves to buy a business with big upside potential, but no one is going to pay more than it’s presently worth. Unfortunately, people who buy businesses want a proven business that’s making money, not a business that just has “potential”. If the business has potential but isn’t yet making money, why should that potential money go to the seller?
The best time to sell is when your business is thriving or when an investment is needed to take it to the next level and you, as the business owner, don’t want to incur that cost.
6. Selling Using Online Brokers
Did you know that 90% of businesses listed on online broker sites NEVER get sold? According to an article in Forbes:
“The percentage of listings that won’t sell is more like 90%. Therefore, it is a daunting task and frustrating for a buyer to wade through the numerous listings that are overpriced, have unsupported cash flow, lack information, and brokers who are not well trained. So the best route is to assist a buyer with a direct search, because the best listings are not on the internet.”
Too many business sellers will go with a business broker based on the price the broker tells them it will sell for. They get your business by telling you what you want to hear rather than what you need to hear. Then, after months of being on the market, they’ll start to tell you that you need to reduce your price.
Another mistake that will cost you money is using a discount broker. Why? Because the reason they offer lower commissions is that they cut their marketing costs. How is not marketing your business to potential buyers helping you?
Due to these reasons, it’s good to stay away from using online brokers to sell your business.
7. Trying To Sell A Business Yourself
You’re good at running your business. In fact, you’re an expert in it. Why? You spend every day focusing on your business and how you can best solve your customer’s problems.
Do you know what you’re not good at? Selling a business. Why? Because you’ve never done it before.
No one is good at doing something the first time they try. This is also the case when it comes to selling a business.
There are really a lot of legal issues to deal with besides trying to attract just the right buyer. Marketing your business, without your employees catching on, trying to negotiate the highest and best price for your company, and trying to run the business at the same time is a daunting task.
Instead of trying to sell a business yourself or using the services of a broker, why not sell directly to an investor? Business investors are those who specialize in buying businesses. They are less price-sensitive and more interested in favorable terms that can create win-win scenarios for all parties involved.
If you have any questions about 7 Ways To Lose Money Selling Your Business In Texas, feel free to contact us.