equity & exitsBlog · Selling a Business
5 Mistakes Business Owners Make When Selling (and How to Avoid Every One)
I see the same five mistakes all the time with business owners in California, and they can cost hundreds of thousands of dollars. The good news is that almost all of them are avoidable if you know what to look for, and whether you're selling next year or five years from now, you have time to fix them.
Let's go.
Mistake #1: Waiting until you're burned out to start
I can't tell you how many times an owner has sat down with me and said, "I'm exhausted. My health is suffering. I can't do this anymore. I need to sell now."
When you're desperate, it shows. Buyers can sense it, and they'll use it.
I was researching a sale recently: a restaurant owner, in business for 22 years, with great numbers and loyal customers. But he came to a broker after a health scare and wanted out in 60 days. Once buyers knew he was in a hurry, they had the leverage. By my estimate, he left somewhere around $150,000 to $175,000 on the table compared with what he could have gotten with a plan.
The fix: Start thinking about your exit 18 to 24 months before you want to be out. That gives you time to maximize value, clean up your financials, and show up as the prize instead of the seller in a rush. Even if you don't list right away, having a plan changes everything.
Mistake #2: Not knowing what your business is actually worth
Most owners hear a number from a friend or plug their revenue into an online calculator and think, "Okay, my business is worth X."
Business valuation isn't a simple formula like "revenue times two" or "profit times three." A lot of factors move the number:
- Is your lease transferable, and how many years are left on it?
- How dependent is the business on you personally?
- Are your systems documented?
- What does your customer concentration look like?
- Are your financials clean?
I recently looked at two auto shops, each doing about $500,000 a year in revenue. One sold for $350,000. The other sold for $550,000. That's the same industry and similar revenue, with a $200,000 difference in sale price.
The second owner had everything documented, a long lease, and a manager in place, so the business could run without him. The first owner was the business. He touched every car and knew every customer personally, and that made his business worth less.
The fix: If you guess at your value, you'll either overprice and sit on the market, or underprice and leave money on the table. Get a professional valuation early, with no pressure to sell, just so you know your number.
Mistake #3: Messy financials
This one kills so many deals. Disorganized books, personal expenses run through the business, and unreported cash income all make a business very hard to sell.
That's because most buyers need financing, and lenders need clean financial statements. They'll typically want 3 years of profit and loss statements and tax returns that match your books.
When the books are a mess, one of two things happens:
- The buyer can't get financing, and the deal falls apart.
- The buyer uses the mess as leverage: "I can't really verify these numbers, so I'll offer 70% of what you're asking."
The fix: This one is very fixable. If you're thinking about selling in the next year or two, start cleaning up now. Hire a good bookkeeper, get your P&Ls organized, and make sure everything matches your tax returns. Clean financials don't just help you sell. They help you get top dollar.
Mistake #4: Being too involved in day-to-day operations
If you're the only one who can do the important things in your business, your business is worth less. It really is that simple. Buyers don't want to buy your job. They want a business that runs without you.
If you're working 60 hours a week and everything depends on you being there, what happens when you leave? Revenue drops, customers drift away, and the business suffers. That's a risky investment, and risky investments get lower prices.
A business with documented systems, a manager who can run things, and a well-trained team is something a buyer can step into and run successfully, and they'll pay more for it.
The fix: Start working yourself out of the business now. Document your processes, train your team, and build your systems. It's good for your sale and, honestly, good for your sanity right now.
Mistake #5: Trying to sell it all by yourself
I get it. You built this business from nothing. You're independent and you solve problems. Why pay someone when you can do it yourself?
Here's what usually happens. You list on BizBuySell or a similar site and get a flood of inquiries in the first week. Then you discover that most are tire kickers with no money and no experience, just browsing, and only a few are serious. Meanwhile you're spending hours a week on emails, calls, and showings, and your actual business suffers because you're distracted.
When you do find a buyer, the hard part starts: structuring the deal, handling due diligence, and negotiating terms. That's where owners agree to things they shouldn't, like seller financing they can't afford or contingencies that blow the deal up later.
I've talked with owners who tried to sell on their own for 8, 10, even 12 months, then finally brought in a professional and sold in 60 to 90 days. Positioning the business, screening for serious buyers, and steering the whole process is exactly what a good broker is there to do.
The quick recap
- Don't wait until you're burned out. Plan 18 to 24 months ahead.
- Know your real value, not a guess.
- Clean up your financials so they match your tax returns.
- Work yourself out of daily operations.
- Don't go it alone on the deal.
Frequently asked questions
How far in advance should I plan to sell my business? Ideally 18 to 24 months before you want to exit. That leaves time to clean up the books, reduce owner dependence, and sell on your timeline instead of a buyer's.
What makes two similar businesses sell for very different prices? Things like a transferable long-term lease, documented systems, a manager in place, low owner dependence, customer concentration, and clean financials. In the auto shop example, those factors made a $200,000 difference.
What financial records do I need to sell a business? Typically 3 years of profit and loss statements and tax returns that match your books, plus supporting documents for any addbacks.
Should I sell my business myself or use a broker? You can sell it yourself, but expect to spend a lot of time screening buyers and negotiating structure and due diligence. A broker's job is to position the business, find serious buyers, and protect your terms.
Find out where you stand, with no pressure
Whether you're selling next year or a few years down the road, request your free Forensic Exit Audit. We'll look at your numbers and give you an honest read on where your business stands and what would move its value.
The examples in this article describe specific situations and aren't a valuation or prediction for any other business. This article is for education only and isn't legal, tax, or financial advice.
Sumathi Sivakumar | Equity & Exits | DRE #02159366