In my conversations with prospective sellers, I regularly encounter two repeating mindset mistakes that cause big problems when trying to sell a firm or business.
Selling the Whole and the Parts
The first mindset mistake is when the owner wants to get paid for the business, and then paid again for some or all the assets.
Recently, an owner told me that, in addition to the practice value, he wanted to receive a fee for each new client that came from the mailing list. He reasoned that since he’d built the list, and it would continue to drive revenue for the firm, he should ‘participate’ in that revenue.
Unfortunately, this view misses the point of selling a going concern business.
Because all the assets – including the mailing list – were used by the firm to generate its revenue, it isn’t reasonable to sell the stream of revenue without the components that create that revenue, including the mailing list.
It’s like trying to sell a car then get paid an additional amount for the wheels.
Variations on this mindset mistake include:
- Expecting an origination fee or commission from sales to existing clients,
- Licensing intellectual property assets (a book, videos, blog posts, podcasts, trade name, etc.) to the buyer after the sale for a license fee, or
- Receiving a fee for use of the firm’s systems after the closing.
When selling a business as a going concern, all the assets used to create the revenue must be included in the transaction.
Fire Sale Timeline without Fire Sale Terms.
The second mindset mistake is an owner who has little time to complete a sale yet expects the highest possible purchase price and an all-cash deal.
I regularly get calls from owners looking to be out and retire in three to six months. But while this owner has a short deadline to sell the firm or business, he absolutely won’t consider an attractive offer price or great terms for a quick sale.
He’d rather close the firm and get little or nothing from it than receive even part of the firm’s value in a quick sale.
Fire sale transactions rarely, if ever, result in full value or cash terms. Purchase price and terms are a function of the ability to properly market the firm for an appropriate period.
Give yourself time by starting the process as early as possible. It typically takes 9 to 18 months to sell a firm. An intermediary must complete a substantial amount of upfront work to appropriately market the firm. Plus, there may be some cleanup work to complete to get the best price possible.
If that isn’t possible, set the price and terms so the firm will be very attractive to buyers.
If you’re thinking about your exit, now is the time to start working on it. Call us at (407) 649-7777 if you have questions or want to go over the process. We’re here to help.
494
