The biggest mistakes owners make when selling their business

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For many entrepreneurs, selling or moving a business is like giving up a baby they’ve raised from infancy.

Certainly, much is at stake in the economy, as 80% to 90% of owners are locked into their companies’ finances, according to estimates from the Exit Planning Institute, an education, training and credentialing organization. Many owners also underestimate the many emotional aspects that go along with leaving a business.

Here are five mistakes owners should avoid when selling a business.

Failure to plan

Many businesses don’t have an exit plan or they haven’t adequately strategized for many scenarios, said James Jack, who runs the business owners client segment at UBS Global Wealth Management. And because of that they are susceptible in the event of death, divorce or if a suitor, such as a private equity firm hungry for a deal, comes knocking. Fifty percent of exits in the US are involuntary due to death, divorce, disability, distress or disagreement, according to the Exit Planning Institute.

To avoid scrambling, or being forced to accept a lower purchase price, owners should do scenario planning at least once a year with advisors that include CPAs, financial advisors, attorneys and members of the family, if applicable, said Jack. They must also maintain an up-to-date business assessment.

Even with planning, it can take six to nine months to get from the point of starting a sale to completing a transaction with an outside buyer, says Scott Mashuda, managing director of River’s Edge Alliance Group, an M&A advisor to businesses. “Not planning is planning to fail.”

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Not involving professionals early

Some owners, who may be used to a do-it-yourself approach, may try to do the same when it comes to a sale or relocation of their business.

But taking this step, without consulting outside advisors such as M&A specialists, valuation experts, CPAs and lawyers, is ill-advised, according to exit planning professionals.

Justin Goodbread, a certified financial planner and president of wealth management firm WealthSource, offers an example of a six-figure mistake he — a seasoned outside planning professional — nearly made on a recent deal. If not for his outside advisors, he would have signed an official letter of intent that would have limited his tax planning ability.

“As a Certified Exit Planning Advisor, I know all the necessary steps to take when navigating a business sale. However, my eagerness to close the deal caused me to miss a step,” he said. in the email comments. “Because my attorney and CPA were involved, they were able to tell me to slow down, and we were able to transact in a more tax-sensitive way,” he says.

Insists that the children are the next owner or does not consider the children as successors

Many business owners are planning to pass on their family business – 44% according to an October UBS report. But, as the report illustrates, they aren’t always sure how assets will be divided or whether heirs will want the business.

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Sixty-seven percent of owners surveyed believed their heirs would want the business and 33% thought their heirs would be most interested in the assets from the sale. However, among heirs, 52% say they want the actual business, compared to 48% who say they prefer the assets from the sale.

To help establish what’s important to both sides and ensure assumptions don’t get in the way of sound business decisions, Julia Carlson, founder and chief executive of Financial Freedom Wealth Management Group in Newport, Ore., first held a two meetings — one for the owner and the other for their children. “Because things will be different if we all meet first,” she said.

With the founders, he discusses their aspirations for the future of the business and other financial considerations. Consultations with children include their capacity and willingness to buy out the parents and run the company. If joint ownership between siblings is an option, he assesses their ability and willingness to work together. With this information, he brings both parties together so they can begin to take the next steps.

Not planning for after-sale

Planning for a business sale or move should also include understanding what comes next — whether that’s volunteering, traveling, starting a new business or something else, says Scott Snider, president of the Exit Planning Institute. Whether the emerging founders are 40 years old or 65 years old, it’s critical that they determine their vision for the next phase, he said.

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For many founders, the business has been the biggest part of their lives for 20 or 30 years, and losing it can cause significant emotional upheaval, including higher chances of divorce and general dissatisfaction with life. . “They often feel like they’ve lost their identity,” Snider said.

Being a helicopter business owner

Because their lives are tied up in the business, owners sometimes stay involved too long, hindering the successor owner’s ability to thrive. This is often true of family-owned businesses. Carlson offers a real-life example of a patriarch who decided years ago to turn the family business over to his capable and willing adult sons. Instead of fulfilling this promise, however, he continues to come into the office every day and manage the sons’ businesses, leading them to consider leaving to start their own businesses.

“Dad had been so used to running the business for 40 years that he felt it would collapse without him.” If things stay the way they are, however, the business could collapse because of his inability to let go, Carlson said. “Business is like another child and he can’t give enough space to see success on the other side.”

Fewer small business owners believe the US is in a recession, according to the survey

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