Nate Collins is a Financial Advisor at Raymond James. He works with a select number of business owners and their families to achieve their financial goals. Nate provides in-depth tax-mitigation strategies and estate planning, as well as comprehensive family-office services. He helps owners understand exit readiness, maximize wealth transfer, gain family alignment, and prepare for “life after exit.”

nate.collins@raymondjames.com
203.635.5420

BUSINESS OWNERSHIP

Top seven pitfalls business owners step into when selling their businesses.

On the Business Exit Insights podcast, we spoke with Ken Grider (link to podcast), Senior Managing Director of Investment Banking at Raymond James, and Lisbeth Barron (link to podcast), CEO of Barron International Group, about the opportunities and challenges business owners are presented with when selling their businesses.

Here are 7 potential pitfalls that these experienced investment bankers identified as being very common and impactful.

7 Potential Pitfalls

1. Failing to Assess True Goals in Advance of Launch: Both experts stress the importance of introspective analysis before engaging with potential buyers. This includes a thorough review of ultimate goals (valuation, legacy protection, post-closing involvement, etc.), as well as understanding your business's strengths and weaknesses.
2. Not Thinking Outside the Box with respect to Identifying the Buyer Universe: Many sellers mistakenly believe they know all potential buyers, but the universe is often much larger and more varied than anticipated.
3. Attempting to Sell Without Professional Help: Grider highlights that trying to sell a business independently, without engaging an investment bank and other professional advisors, often results in suboptimal outcomes. “If you have a medical condition or need surgery, you're going to get a surgeon to help you work through that process.”
4. Neglecting Financial and Legal Preparation: Ensuring your legal and financial affairs are in order well before the sale process begins is crucial for a smooth transaction. Barron advises owners to ensure that “there is an assembly of relevant documents and data organized early, whether that's making sure that formal financial audits have been done, legal and employee contracts have been gathered, proper management information systems are in place, and realistic financial projections have been prepared that support your valuation”.
5. Lack of Clear Strategy or Narrative: Barron mentions the need for a coherent story that aligns with the financial model and growth prospects, ensuring credibility and buyer trust. “Strong marketing materials should be drafted that effectively tell your story and strategy. And that factual narrative should be adhered to throughout the process to maintain the credibility of the owners and allow buyers to be able to rely on the information given. Also, owners should be prepared for tough questions and have responses ready.”
6. Overpricing the Business: Both advisors warn against overpricing / over-negotiating, which can deter potential buyers and lead to a failed sale process. Barron says, “There's also the mistake of believing that if you don't get it right this time, you can take your company off the market and re-enter the market again in a year or two, and no worries, you'll get all of the same or better buyers at the table then, and at higher prices. That almost never happens.”
7. Second-Guessing Advisors’ Counsel: Disregarding the advice of experienced advisors, including investment bankers, legal, personal finance, and tax professionals, can lead to costly mistakes. Barron states, “So if you're able to bring on board a really strong advisor, pay attention to their crucial input… Remember that you as an owner have an expertise in running your company, but may not be the expert in getting it sold. That’s the job of your advisors, who may have decades of experience in avoiding pitfalls and getting deals across the finish line. Don’t try to compete with them for ‘who’s right’ or to take short cuts”. Grider adds, “Literally, it takes a village. You have all four of those working in combination with the business owner typically to get to an optimal outcome.”

In summary, selling a business is a complex process that requires careful preparation, realistic valuation, and professional guidance. Business owners should avoid these common mistakes to ensure a successful sale that meets their goals and expectations. Engaging with advisors early, understanding the market, and preparing thoroughly are key steps towards a smooth and profitable business exit.

Contact Nate Collins at nate.collins@raymondjames.com to discuss your business exit plans.

The foregoing information has been obtained from sources considered to be reliable, but we don not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Nate Collins and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional.