6 Mistakes Contractors Make When Selling Their Business

If you’ve decided it’s time to move on from your company, be sure you’re not making any of these miscues that can affect how much value you get out of a sale

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Selling a company isn’t an easy.

You spend a large portion of your working life trying to grow your company and now for whatever reason you decide it is time to sell. Both successful and unsuccessful small-business owners may want to sell their company for very different reasons, but all types of owners make similar mistakes when attempting to sell.

Selling a company is a complicated, stressful, and emotional process and making mistakes during this process can negatively affect the valuation of your business. As a business broker, I have seen many contractors make mistakes during the selling process. Here is a look at some of the most common ones.

Failure to maintain good workers

One of the last things a prospective buyer wants to see is a company where the workers are unable to do their jobs without the owner present. Additionally, many company owners do not delegate well, meaning the people who work under them have limited experience with certain key tasks. A company with an owner who involves themselves in every job tells a prospective buyer that they will have to either do the same, spend time grooming the existing staff, or find new people who can complete a job without constant supervision.

A majority of buyers do not purchase businesses to personally provide on-the-job services. Buyers want to buy a company to work on the business and not in it. They can’t do that if you fail to maintain good workers while trying to sell. You must maintain a staff that can keep your company running after you leave, as well as maintain important leadership positions in your company. Lacking depth of management signals to buyers that your company is not established and lacking a stable infrastructure, making a sale less likely.

Customer concentration

Too many company owners rely on revenue from a small number of homogenous clients. A company needs a diversity of clients if the owner wants to sell for top dollar. It is better to have 200 jobs from 200 different clients than 200 jobs from one client.

Having a large number of jobs from one large client pays well, but what happens to your company if that large client leaves? You are at risk of losing all or a large chunk of your revenue stream. A company with diverse clientele can deal with losing a client since they have more to work with.

Mismanaged books

The quickest way to get a potential buyer to lose interest in your business is to mismanage your financial records. If your books are a mess that is a red flag for buyers. Many sellers will have issues with their QuickBooks, tax returns, payroll records, sales tax reports, bank statements, cost of goods and maintenance reports.

Messy books make it difficult for a buyer’s CPA to confirm your financials and show that your business is not running efficiently. They must be neat and easy to verify, or buyers will likely push away from the table. Not taking the time to ensure your records are in order will lead to fewer and worse offers when it comes time to sell your company.

Fleet is in disarray

A company with a poorly maintained vehicle fleet is a red flag for any prospective buyer. A poorly functioning fleet completes fewer jobs and makes the company less money.

You must keep your vehicles in good working condition and put them on a regular maintenance schedule. The reality is a buyer is not going to buy a company with a poorly maintained fleet. On the off chance they do, there would likely be an adjustment to the sale price.  

Creating dissatisfied customers

When some company owners decide to sell their business they check out and neglect customer service. Some owners think that the perception of their clientele matters less since they are selling the business. However, the perception of your customers is even more important when you are selling because your customers are the best way to show buyers that your company has a good reputation.

You should not take your foot off the gas just because you are selling. Keep providing top-notch service and getting great reviews from your customers.

Creating unrealistic expectations

Every owner thinks their business is worth top dollar. Owners consistently have unrealistic expectations regarding the value of their company. You must set realistic expectations when it comes time to sell. No business is the same and many different factors play into a company’s value.

Set up a plan that factors in a price range you would accept with your business broker and discuss the steps that need to be taken to get there.

About the Author

Brian Bond is the principal of Strategic Business Brokers Group, in affiliation with American Realty Brokers, and has helped dozens of owners sell their businesses across Arizona. Bond has been named “Broker of the Year” by the Arizona Business Broker Association.


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