Ten Common Mistakes Sellers Make

1.  HIRING BROKER UNDER IMPROPERLY STRUCTURED FEE AGREEMENT

A business seller should be willing to pay a reasonable retainer and a success fee to not only motivate but to obligate the broker to perform.  The retainer can be paid all at once when the listing agreement is executed or can be spread over the course of the engagement by way of monthly installments.  Sellers should not sign an agreement longer than one year.  The size of the broker’s standard retainer will most likely range from $500 – $2,500.  Businesses with asking prices in excess of $3,000,000 will most likely require a larger retainer.

2.  FAILING TO PROVIDE ADEQUATE INFORMATION UPFRONT

The Confidential Business Review, “CBR,” is one of the most critical aspects of the work associated with selling a business.  It behooves a broker to be strong with a seller to secure the data needed, both financial and operational, to be able to complete the CBR in a reasonable period of time.  The CBR should be thorough enough to allow a buyer to be able to provide a price range in advance of visiting the business.  Without the necessary information provided upfront, the broker cannot complete the CBR in a timely fashion resulting in a stalled effort to take the company to market.  Some of the items the sellers seem to be slow in providing are the following: financial projections, descriptions/sales of competitors, equipment lists, analysis of sales representatives, growth strategies, competitive advantages, etc.

3.  GIVING IN TO PARANOIA

 

The broker needs to communicate with the seller on a myriad of ongoing financial details including monthly updates, backlog, product sales mix, etc.  Additionally, there may come a time the broker will need to discuss certain issues with other key people involved in the business. 

4.  INSISTING ON WORKING WITH UNQUALIFIED OR CONFLICTED ADVISORS

A seller should form a “DEAL TEAM” of highly qualified and un-conflicted advisors with excellent negotiation skills so that when they are confronted with the many issues that arise in a transaction they are prepared to offer up solutions and to negotiate solutions.

5.  FAILING TO PULL THE ADVISORS TOGETHER EARLY ON IN THE PROCESS

By working together with the advisors prior to drafting a letter of intent or purchase and sale agreement the broker will be better equipped to keep all parties engaged in a positive deal affirming way.  A collaborative effort early on will help the seller and the broker formulate their strategy up to and including the negotiations.

6.  LACK OF COMMUNICATION

The seller needs to be in constant contact with the broker returning telephone calls and e-mails that day.  Rapid response will keep the broker motivated and diligently “on his toes.” Some potential buyers can be fickle and if the communication lags, their interest wanes. Since the broker is the conduit of information between buyer and seller, the seller must focus on elevating his frequency of dialogue with the broker whether the former is traveling, vacationing or where-ever.

7.  FAILURE TO COACH THE BROKER ON THE BUSINESS AND PROVIDE MUCH NEEDED COMPETITOR INFORMATION

 

For some sellers, the tendency is to rationalize that the broker’s job is to identify all the potential buyers. In the perfect world, the broker’s job is to feather-out all the buyers and possibly rate them according to their strengths. Perhaps that’s true, but in the real world, the broker needs all the help he can muster. Therefore, the seller should provide all the industry names as possible buyers by turning over to the broker all his trade publications, directories, relevant records and other pertinent resources.  Some sellers naturally get discouraged when a potential buyer aborts the deal or the offers are below the seller’s price expectations. This is not the time for sellers to give-up neither on themselves nor with their broker. Most deals are completed in 9 to 12 months, but then again some transactions can take as long as 2 years to complete.

8.  LEAVING THE BROKER OUT OF THE NEGOTIATIONS

Some sellers feel the broker’s job is done when the deal reaches the letter of intent stage. Wrong! The broker is the one who has probably had the most personal contact with the buyer and established the positive chemistry with him. In rushing the attorneys to debate the various items of the deal, possibly an adversarial relationship develops. Oops, what happened to the personal bonding created by the broker necessary to get the deal back on track?

9.  QUITTING BEFORE YOU CROSS THE FINISH LINE

When the letter of intent is signed by both parties, there is a reasonable chance the deal may not be finalized. Realizing this possible fateful circumstance, the seller should continue paying the broker their retainer and/or keep him fully engaged, because the broker’s job is to keep the other bidders of the company alive as a fall-back position.

10.  FAILURE TO CELEBRATE THE “WIN”

 

Successfully completing the sale of a company is a notable achievement. To walk-off with millions of dollars from the proceeds of the sale without celebrating by dining-out with all the key advisors would be an opportunity lost to reward those so important to the owner’s success.