EDITORIAL FEATURE
10 Things Sellers of Businesses
Should Never Do
By Jeffrey D. Jones, ASA, CBA, CBI
They should never
refuse to make
a counter offer
in writing.
The business
broker will require
buyer prospects to put
their offers
in writing and
submit an earnest
money check.
In the event the offer
is not acceptable,
the seller should
respond in writing
as well to avoid any
misunderstanding
and/or lose an
opportunity to finalize
a transaction.
W
hen selling a business, there are several
mistakes sellers often make. The following are the 10 things sellers of businesses
should never do:
1. They should never stop doing the things that
make the business prosper and grow such as the
reduction of advertising and marketing campaigns,
hiring quality employees, and upgrading equipment
as necessary. Not doing these things will usually result in reduced sales and profitability.
2. They should never make the decision to sell the
business when they are not sure they are ready to
sell. This generally results in the business being
overpriced and a lot of time wasted dealing with
buyer prospects that will never make an acceptable offer.
3. They should never expect a buyer to make changes to the business operations that you, as the seller, are not willing to do now such as replacing high
paid employees with less expensive employees, increasing advertising, reducing the size of the facilities, expanding into areas where you are not presently doing business, and/or expanding product/
service lines. Buyers do not like change and should
not make changes to the business operations until
they are fully versed in the business.
4. They should never allow buyer prospects to
come to the business without the broker to tour
the business and ask questions. The business broker should always be present during the meetings
between the seller and buyer to control and direct
the conversation and assist in obtaining any information needed by the parties.
5. They should never discuss price and terms of
sale with a buyer prospect. Let the business broker handle this on your behalf. The broker will
require all offers be made in writing.
6. They should never expect a buyer to pay for
goodwill when the earnings do not support it.
24 SMALL BUSINESS TODAY MAGAZINE [ JUNE / JULY 2015 ]
Every business has elements of goodwill such as
experienced employees, existing customers, operating equipment, and a facility; however, unless these elements generate a profit in excess of
a reasonable return on the tangible assets, then
there is no return on the intangible assets (goodwill value).
7. They should never expect all cash for your business. With seller financing, a buyer should pay 25
percent to 40 percent down with the seller financing the balance usually over three to five years.
Even when the buyer obtains bank financing for
the business, it is common for the bank to require
that the seller carry at least a small portion of the
sales price. This makes the buyer and bank