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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 866-270-6278.


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



  Helpful Resources To Assist In Selling And Buying California Businesses
Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Joe Sandbank, Esq. - Legal Services

I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process.

Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers

I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

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.

Helen Yoo: Escrow & Bulk Sale Services - 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.

Elizabeth McGovern: Escrow Services - SF 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.

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

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.

Janet Carrera - Escrow & Bulk Sale Services - 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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