Don’t Fall For It: The 5 Mistakes Entrepreneurs Make When Dreaming of Selling Their Business

Don’t Fall For It: The 5 Mistakes Entrepreneurs Make When Dreaming of Selling Their Business

If there’s one thing I’ve learned in my years of working as a CERTIFIED FINANCIAL PLANNER™, it’s that entrepreneurs are a special breed of people. They’re motivated. They’re inspired. They’re incredibly tenacious. They’re smart. They’re optimistic. And they know how to get what they want.

On the flip side, many entrepreneurs are guilty of being a little pie-in-the-sky—especially when it comes to their own businesses. Unrealistic expectations of the exit process can both hinder the sale of a company and affect the morale of an entrepreneur getting ready to sell. Be wary of the mistakes below and you’ll enter the exit-planning process better informed, better equipped strategically, and more likely to enjoy your sale process.

1. Assuming They’ll Find Perfect Suitors Immediately

• Since most entrepreneurs have enjoyed a lot of hard-earned success, it’s no wonder many assume that a buyer (or two or three . . .) will appear as soon as they’re ready to sell. Unfortunately, that’s just not the case for the majority of sellers. Nearly 80 percent of companies on the market won’t sell. Knowing this will stop you from becoming too impatient and will let you take steps now to ensure that your business is attractive to the buyers who are out there.

2. Assuming Their Business Will Sell for Many Times Their EBITDA

• This is a big one. In my experience, most entrepreneurs automatically assume they will sell their business for four or five times their EBITDA easily. That’s because most haven’t done much research into average sales prices in their markets. According to a 2013 Q3 BizBuySell Insight Report, the average sale price for a small business was $180,000, with a multiple of 0.6. That comes out to a 60 percent value of EBITDA—not anywhere near 500 percent.

3. Assuming They’re Unstoppable

• Hubris: It’s what entrepreneur Frederic Kerrest calls “a startup’s worst mistake” in his Forbes guest post. He writes, “It’s a big mistake that startups and established companies alike make. It lulls them into cockiness, complacency and a sense of invincibility and causes them to lose sight of what matters most—making customers successful.” Know your strengths, weaknesses, and your competition and you’ll make your company more profitable now and more saleable in the future.

4. Assuming They Can Sell Their Business Themselves

• Many entrepreneurs may be attracted to the idea of selling their own business because they think they’ll save money and won’t have to pay any broker’s fees. While that may be true in the short term, selling your business without an exit team will hurt you in the long run and is essentially guaranteed to leave you with less money in the end. Find out who you should be hiring in our blog post on assembling your exit team.

5. Assuming Their Exit Is an Isolated Event

• When fantasizing about the sale of your business, do you picture yourself signing a deal, cashing your check, and hopping on a plane to your favorite vacation destination? Many do. But you shouldn’t think of your exit as a one-time event: It’s a dynamic process that should take at least two or three years. Be willing to put the time into exit planning. You won’t be sorry.