The Three Most Dangerous – and Costly - Mistakes Small Business Owners Make When Selling Their Businesses; Premier Sales Takes on 'Education- Based Approach'

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Premier Sales, a Phoenix Company takes on "Education Based Approach" to helping small businesses get their price

There are three buyer categories that are especially active at this time. They are companies looking to expand into new markets or to acquire new products, companies looking to buy their competition to increase market power and, finally, those individual buyers looking own and grow their own businesses.

There is no question the current economic downturn has affected the buying and selling of businesses. In spite of the fact that sales of small business has improved slightly from the 2nd to the 3rd quarter of 2009, according to BizBuySell.com, however, the rate is still down 24% year-over-year.

Every one in two individuals in the U.S. private workforce is running or working for a small business. Small business creates more that half of the U.S. gross domestic product, thus, the role of small business is critical to economic recovery and health. So regardless of overall reduction in transactions, small business is a large and vital market, with active buyers and sellers at all points in the economic cycle.

With the economic climate slowly improving there are still challenges, but many are still motivated to buy a business. According to Bruce Black of Premier Sales, a top ranked business brokerage firm in Phoenix, Arizona, “There are three buyer categories that are especially active at this time. They are companies looking to expand into new markets or to acquire new products, companies looking to buy their competition to increase market power and, finally, those individual buyers looking own and grow their own businesses.” With active buyers such as these, the small business owner is well positioned to find buyers for their business.

There are critical factors affecting transactions in the current market. With the timing and volume of economic expansion uncertain, buyers are protecting cash and attempting to pick the best time to make an acquisition. The National Small Business Associate claims that 50% of small business owners cite “economic uncertainty” as one of the most significant challenges they face to the growth and survival of their business. Also, the lack of liquidity in the financial markets means that the structure of deals is changing and becoming more difficult to achieve. The use of creative financing methods is on the rise.

“Regardless of the state of the economy, business and personal circumstances require owners to consider selling or planning their exit,” according to Diane Thomas, president of Premier Sales, a broker for both business buyers and sellers. But, there are important considerations for a business owner attempting to sell at this time.

Thomas continues, “A challenge many sellers have is being objective. After all, many of our clients have built their business from scratch. They are emotionally involved. This is understandable, but our job is to help them develop realistic expectations combined with needed transactional savvy, so they can be successful.”

The 3 most dangerous, and costly, challenges a seller has are:

1.    Understanding the value of their business. Expert help is needed to assess the current market value. Many sellers have unrealistic expectations. They need accurate, seasoned advice, based upon market realities. If the pricing is excessive, the ability to sell in a timely fashion is unlikely.
2.    Positioning the company for sale. There are numerous opportunities to improve the balance sheet, correct weakness in expenses and operations and management of capital. Making a business more valuable to a buyer may not always be consistent with current operations or strategies, so early changes can be invaluable.
3.    Lack of deal structure expertise. With creative financing more prevalent, it is essential for the seller to get the best advice on options for structuring the transaction. Leverage buy-outs, leases, royalties, earn-outs and security to both buyers and sellers can add significant value.

The time to complete a transaction can take more than a year. The greater the value, the more time required. Thus, starting early to plan and position a company is needed.

Under these circumstances, it is advisable for a seller to assemble a team of experts in such transactions. The business broker can serve as the coordinator for the specialized attorneys, CPA’s and bankers who may be involved.

There are advantages to both buyers and sellers in the current market. Buyers will find there are bargains to be found, even though financing may be a challenge. Sellers are facing a down market and there is a smaller pool of buyers. But, the market is slowly improving and with proper preparation and patience, a satisfactory transaction can result.

For More info: http://www.premiersales.com

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Diane Thomas
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