When it’s time to sell your small business, you want to make sure you do it right. After all, you don’t make much money owning the business – you make money from selling it.
This critical process can make or break your retirement.
At CSI Accounting & Payroll, we’ve worked with small business operations for over 50 years. That means we’ve heard about a variety of mistakes that are made when selling a business, including these four most common ones:
- Selling at the wrong time.
- Not getting a professional business valuation.
- Having incomplete, inaccurate accounting records.
- Not comparing asset sale versus stock sale options.
1.) Wrong Time
This is by far the biggest mistake we see small business owners make. It’s not so much how the market is doing, but it’s not preparing to sell three years in advance.
When business owners feel like retiring, they’ll just go ahead and do it. However, moving too quickly can be the difference of hundreds of thousands of dollars in missed potential.
So, what should you be doing three years before you plan to sell your business? Maximize your sale price by:
- Ensuring you’re not overstaffed.
- Not investing in any new assets.
- Not changing any processes.
- Removing perks that are not necessities.
Essentially, you’ll want to avoid excess expenses and keep things status quo. At that point, your business valuation should be higher, and you’ll look more attractive to potential buyers.
Not sure how to get started? Be sure you’re working with the right team.
2.) No Business Valuation
The second mistake that we’ve seen a bit is that when trying to save money in that final stretch, business owners cut corners by not getting a thorough, professional business valuation.
If you don’t partner with an attorney or a business broker who specializes in your industry, then you won’t understand the value of your business to sell it for the best price. You’ll think that your business is either worth less or more than it really is.
Overvaluing a Business
It’s less common for business owners to think their business is worth more than it actually is.
If you think your offers are too low, then you’ll never sell your business.
Undervaluing a Business
On the other hand, it’s most common for business owners to think their business is worth less than it actually is.
While this can help you sell faster, it can also be a critical lack of funds that you need to retire with. Think beyond your profits and also consider your equipment, processes, real estate, and other things that increase the value of your business.
3.) Poor Accounting Records
Another major mistake that we see is small business owners trying to sell without great accounting records. At the end of the day, your buyer’s trust is what matters most.
You won’t sell your business to anybody if your finances aren’t transparent and organized, so you need to show that you have accurate statements that match your tax returns.
You’ll also need to show the separation of your personal and business expenses, which is one of our top five bookkeeping tips for small businesses.
4.) Asset Sale vs. Stock Sale
The final mistake to avoid is not taking the time to communicate whether your buyer is looking for a stock sale or an asset sale ahead of time.
The difference is important because it influences taxes a lot. Generally, stock sales will have lower taxes than asset sales – and you can use that to increase your asking price since stock sales often sell for less than asset sales, too.
Avoid Common Mistakes When Selling!
Now that you know about the four biggest mistakes we see when owners try to sell their businesses, are you ready to check out monthly accounting services to avoid them?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about how a monthly accountant can help save you money, increase your business’s value, and sell your business.
