And by authorizing a bunch of brokers to introduce a company to prospective buyers, the seller is giving up control over the process. Among other problems, that often leads to the seller’s request for confidentiality ‘going out the window’.
Dublin, CA (Vocus) March 31, 2010
Entrepreneurs are getting smart about proper preparation when selling a business. They know to gather and organize the company’s financial data and to get commitments from landlords and suppliers. But some still are making serious selling errors, as explained in an article on the business exchange website Bizben.com--online marketplace for business opportunities and resources.
“Owners have come a long way in understanding how to market their companies for sale, but we still see some serious mistakes that can ruin the chances of achieving a deal,” said Peter Siegel, MBA, founder of BizBen.com. The website has been a favorite online destination, since 1994, for buyers and sellers of small and mid-sized businesses, as well as the business brokers and other professionals serving this market.
“A lot of the advice we’ve been offering in our online articles and our books are helping business owners to learn how to get prepared. That’s important so that good buyers don’t go away while sellers are trying to get their acts together.
“But we still are working to educate people who, when they’re selling a business, have some bad habits they ought to break if they want to improve their chances of achieving a successful sale.”
Among the worst mistakes, according to Siegel, is pricing a business based on the total profits earned, but then failing to report all profits in the company’s financial reports.
“You can’t really have it both ways. You either collected that extra $20,000 last year, in which event you need to show it on your books. And, of course, pay taxes on that profit. Then it is legitimate to include in the calculations performed to arrive at a suitable market value for selling a business.
“But if there’s $20,000 in profits you’d like to keep hidden from the tax collector, and it never shows up on the profit and loss statement, it’s not appropriate to then use it in the pricing calculation. It’s not cool to tell prospective buyers about the amount of money you’ve been skimming off the top.”
Siegel pointed out that “revealing to a buyer that you’re playing the ‘hide the profit’ game, only ruins your credibility. The buyer figures if you’re trying to put one over on the IRS, it’s not likely you’re telling the truth when dealing with possible purchasers.”
The blog posting also discusses the effort by sellers to expand their marketing reach by dealing with several business brokers simultaneously, using “open listings.”
“The only obligation a seller has to a broker, under an open listing, is if that broker brings the person who actually buys the business,” Siegel explained. “Otherwise, the entrepreneur selling a business is free to make a deal for the company himself, or to contract with other brokers on the same, non-exclusive basis.”
Siegel said that strategy appeals to some sellers “because they think it means they get maximum exposure with more than one broker working for them, and they still are keeping their options open.
“The problem is that brokers usually work only on their exclusive listings. That’s where they invest their time and advertising dollars. The open listing clients get little if any attention.
“And by authorizing a bunch of brokers to introduce a company to prospective buyers, the seller is giving up control over the process. Among other problems, that often leads to the seller’s request for confidentiality ‘going out the window’.”
Siegel said the “purpose of posting the worst examples of mistakes when selling a business is to remind sellers that they’ll incur unnecessary problems and risks when they deviate from solid business practices.”
CEO and Founder of BizBen.com, Peter Siegel, MBA, is a business broker and a consultant who works with entrepreneurs who are buying or selling a business, business brokers, lenders, due diligence service advisers, lawyers, accountants and the other specialists who serve the market for small and mid-sized businesses.
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