Here are the biggest mistakes I see that you’ll want to avoid as an entrepreneur when looking to sell your small or medium-sized business after working so hard to get to this point.

Mistake #1: Not knowing in advance exactly what you want from a sale.

Do you still love going to work and want to stay involved in some way? Do you want to sell all, or just part, of your business — with the potential for selling more later on? Will you be upset if your business is turned into something much more valuable not long after you sell? Would you be angry if any members of your team were fired by a new owner? Would you care if your business were turned into something quite different than the one you created, or do you only care about getting the highest price possible? If exiting this business entirely, might you ever want to re-enter the industry you’re currently in? These are just some of the pressing questions you need to fully consider, if you haven’t already, as you confirm what you really want in both the shorter and longer terms so you can best structure your sale and exit from the business, while protecting your most vital interests.  

Mistake #2: Not weaving together your negotiation strategy with your business execution.

Ideally, long before you sell, you should ensure you’re not doing anything that could limit the interest of those best placed to buy your business. This means considering in advance the profile of those who might want to buy a part, or all, of your business. Consider what these potential buyers might care about including your market positioning, standardization of business practices, documentation of products, services and software coding, the different technologies you employ, the culture you choose to develop, compliance with relevant laws and regulations, and how you’re seen by competitors and customers. In short, you can have the best negotiation strategy at the time of sale but if you’re making business decisions that could undermine your perceived value to likely buyers, you’re either ruling out some buyers entirely or unnecessarily lowering the value you’ll receive in a sale.

Mistake #3: Letting your buyer dictate the selling and purchasing process.

An amazing entrepreneur once called me after being approached by a large public company to buy out his business. The CEO wanted to him to get on a plane ASAP to discuss and close the deal: I advised against going. Giving exclusive assess to one buyer looking to firm up a deal risked closing this entrepreneur off to other buyers before appropriately valuing his business, knowing if he was ready to sell, and gathering other leads. In every negotiation, there are two negotiations — one over what, i.e., the terms of the deal (the substance), the other over how you reach agreement (the process). Important process issues include whether, when, or where to meet, who’s attending, the agenda, the overall timeline, and if you’re granting an exclusivity period. Then there’s how you’ll go about due diligence and when exactly lawyers are to be involved, all with a view to maximizing the perceived value of your business, while nurturing strong working relationships with one or more suitors.

Mistake #4: Being distracted from running your business.

For most owner-entrepreneurs, running a business is all-consuming, let alone trying to sell it at the same time. Selling includes creating the marketing documents (book) for a sale, generating projections and valuation figures, attracting potential buyers, negotiating terms, overseeing due diligence, and documenting the deal. The irony is that if you take your eye off your business, you risk not maintaining and growing it in ways that could clearly affect your valuation. Should you have the internal capacity, consider putting one person in charge of the selling process while you run the business, with this person consulting you throughout and you obviously being involved at important junctures including when decisions have to be made. If you don’t have this internal capacity, hire an outside expert to share the load. Lawyers can be helpful but should not be driving the sales process. Business agents can prove useful in identifying buyers but are often less helpful on other fronts.

Mistake #5: Not protecting important assets during the sales process.

Important assets include your Intellectual Property (IP), your business secrets (not able to be protected by IP filings), your client lists, your detailed financial information, and proprietary sales and marketing data. All of these can be exposed inappropriately even if you have a Non-Disclosure Agreement (NDA) in place, with the result that potential buyers can gain unwarranted leverage in their negotiations with you — or simply walk away and compete more effectively with your business. The protections you’ll need to draw on include the smart vetting of your suitors and their intentions, formal IP filings as appropriate, and the incremental and mutual sharing of information in the right amounts at the right time.

Mistake #6: Not having a unified team internally.

To maximize the value of your business externally, you need to first negotiate internal alignment, which may include ownership stakes, and all key members of your team being appropriately compensated and incented, as well as committed to the sales process. If valued team members have different perspectives on selling or see themselves as potential losers if a sale goes through, this can undermine efforts to sell. Individual roles need to be well defined, any missing roles filled, and any long-standing conflicts among significant employees or shareholders managed. The goal is a strong, cohesive team, with everyone rowing in the same direction to create momentum for the sale. This makes it hard, if not impossible, for a potential buyer to exploit internal differences, poach employees from you, access information leaks that undermine your value, or to simply walk away because of internal discord or fractured decision-making that makes the business less attractive.  

Mistake #7: Valuing a business inappropriately and discussing value in unhelpful ways.

Whatever anyone may tell you, including some accountants and business evaluators, there is a significant dose of influence strategy mixed in with the science of valuation, whether valuing a company by cash flow projections, asset valuations, or multiples applied to cash or earnings. The strategy and tactics related to the ultimate valuation include how you frame the context for a sale, whether you focus on one or more suitors, and how the benefits of future improvements to the business are to be divided between buyer and seller. Finally, getting to the right valuation means structuring the deal before valuing it. Don’t let potential buyers pressure you to put a price tag on your business too soon (this will work against you whether your price is too high, too low, or just right). Wait until you both learn just how strong the fit might be in terms of mutual value, after extensive interactions, and not before you’ve jointly explored different ways to put your deal together, including tax treatment.

Peter D. Johnston, the Managing Director of NAI, is an internationally recognized negotiation expert. He’s advised corporations, governments, entrepreneurs, and individuals from more than 100 nations, and is the award-winning author of the global bestseller, Negotiating with Giants. He can be reached by email at PeterJohnston@nailimited.com.