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Selling A Business - Three Common Mistakes To Avoid


It’s not enough to get your financial information together and to contact your landlord for a commitment when selling a business.  While doing these right things, owners often make three fatal errors that significantly reduce their chances of achieving a successful sale. Those problems are:

1. Signing an open listing might make a person who is selling a business feel that he or she has the upper hand, having engaged more than one broker to sell the company, and retaining the right to do it yourself and avoiding a commission expense altogether. That’s the way this kind of listing works. The broker gets paid only if introducing to the business, the person who buys it. And the seller is free to sell to any other buyers without obligation to the broker. But there are problems with this approach. The "listing" agreement which imposes little responsibility or accountability on either party, is not likely to motivate any brokers to work hard, and can easily lead to a dispute later on. One seller, for example, found that the person to whom he sold a food market had been introduced to it by two different brokers, whom the seller had engaged with open listings. This came out in a civil suit in which the brokers successfully sued the seller for interfering with their business relationships and violating the terms of the listing agreements by instructing the escrow holder not to pay their commission claims.

Open listings rarely result in a satisfactory outcome either for the person who's engaged in selling a business, or for the broker.

2. To set an asking price that's too high in relation to documented income and then claim the price is right because actual income is higher than reported, is a strategy favored by some sellers, but a strategy likely to bring trouble, rather than achieving the desired result. The least of the problems incurred by someone wanting to sell a business with this pricing technique, is that buyers will be "turned off" to the seller. The obvious question is: "If the seller is trying to cheat the taxing authorities, how will she try to cheat me?" That illustrates the skepticism any buyer would have about the honesty of the seller and, by extension, the actual value and desirability of the business.

Merely losing a buyer is the best-case scenario. It also is possible that word will leak out to the IRS and other taxing agencies that the seller is failing to report all income. That could bring the seller serious civil and legal penalties. Besides, any individual naive enough to accept that story and proceed with the purchase, is unlikely to have the skills and experience needed to achieve success with the business. Then, when the buyer figures out he was "tricked" into paying the price, the trouble will spread to the seller, now a prime candidate to be sued for misrepresentation.

3. Some sellers think it’s smart to play "hard to get." According to this reasoning, if the buyer cannot easily reach the owner of the business to ask questions or negotiate a transaction, the buyer will form the impression that the seller must be very busy with other prospects and offers. So the prospective purchaser believes that he (or she) had better hurry up and put in an offer--an offer that the seller will like.

The fallacy with this maneuver is that it doesn't usually work. Most buyers, with plenty of business opportunities to consider, will simply lose interest in any offering that comes with added and unnecessary obstacles.

Since finding a good and qualified buyer to pay a fair price for a small or mid-sized business can be hard enough, it's bad strategy for someone interested in selling a business to make matters worse by committing one of these serious mistakes.

About the Author: Peter Siegel, MBA is the Founder of www.BizBen.com (established 1994 - 7000+ California businesses for sale, 200 new listings daily) and the Director of the BizBen Network (16,000 business buyers, 4,000 small business owners, 1,800 California business brokers & agents). He consults daily with business buyers, business owners, small business advisors, business brokers and agents on selling and buying California small businesses. He is also the author of three books on the topic of how to buy and sell California small to mid-sized companies. For a FREE consultation on the best way to buy or sell a California business, phone Peter Siegel direct at 925-785-3118.

Categories: BizBen Blog Contributor, Deal And Escrow Issues, How To Sell A Business, Selling A Business


Comments Regarding This Blog Post


I agree with all these points, and I think that one of the major mistakes sellers make when selling their business, is simply not taking the advice of their broker. It's important that the relationship between broker and seller is open and trusting. Many sellers, understandably, may have been burned by brokers who were unprofessional, but if the relationship is bad, especially with a competent broker, then it makes the selling process all the more difficult. A seller should understand that it will take time to sell the business, sometimes, six months to a year, and so if they give the broker a three-four month listing, then they are not do him/her justice. The broker who does not have enough time to get the listing sold with an obligation from the seller, may put more of their efforts into listings that have a longer term on the listing contract.






  Helpful Resources To Assist In Selling And Buying California Businesses
Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Elizabeth McGovern: Escrow Services - San Francisco Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.

Shalonda Chappel-Pilgram: Escrow & Bulk Sale Services - Southern California

Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.

Helen Yoo, New Century Escrow - Escrow Services In Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Brad Steinberg, Business Broker: Laundromat Specialist

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

Janet Carrera: Escrow & Bulk Sale Service - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.


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