A business sale is generally the single biggest financial event of a business owner's life, and most get only one opportunity to get it right. While there are countless details to attend to leading up to and beyond a sale, our experience has taught us to begin with the end in mind, focusing on what's next.

We support business owners up to, through, and post-liquidity events, providing confidence and clarity to succeed and keep more of what they have built for themselves and their families. Through our experience with more than 60 wealth events, we have found that the better the preparation and sales process, the more likely the company will achieve a favorable price.

Of course, the opposite is also true: If business owners make big mistakes when selling, they risk failing to walk away with the amount of money they probably deserve, given their efforts over years and decades.

With that in mind, here are four types of mistakes the research tells us can derail a sale—along with advice on how to avoid them.

MISTAKE #1: FAILING TO EFFECTIVELY NEGOTIATE WITH PROVIDERS

We all know that very often the amount of money a company is worth is strongly influenced by the negotiations between the buyer and the seller.

But it's not only negotiating with the potential acquirers that is important. Relatively few successful entrepreneurs negotiate with their own professionals involved in the transaction.

Example: Many business owners look to investment bankers to find possible buyers and to facilitate the sale. However, relatively few business owners initially think of negotiating their agreements and contracts with investment bankers. Some possible mistakes in these agreements include:

• An excessively long timeframe that the investment bank has to exclusive rights. Sometimes investment banks might ask for two years, when six months or so is more the norm.
• Paying the same commission for the investment bank to raise debt (easier to do) as to raise equity (harder to do).
• A lack of reciprocal indemnifications. While the investment bank requires the company to indemnify it for misinformation provided by the company to potential buyers, the company should be indemnified by the investment bank for providing misinformation to potential buyers.

How common is poor negotiation with advisors?

According to 107 corporate attorneys surveyed:

Very Common — 15%

Common — 54.2%

Occasional — 25.2%

Uncommon — 5.6%

Nearly 80 percent of corporate attorneys say that poor negotiations with providers are common or very common. A mere 6 percent said poor negotiations were uncommon.

MISTAKE #2: FAILING TO PROPERLY PREPARE KEY PERSONNEL FOR THE SALE

Very often, the success of a business is dependent on its key personnel—including senior executives and top salespeople. Making sure those people are incentivized to stay with the business and its new owners can be critical to the sale (and the sale price).

There are many ways to incentivize key personnel to stay and help facilitate the transition of ownership. Employment contracts with bonuses are commonly used. Another approach: Offer "exit event stock options" that can only be exercised if the company is sold or goes public.

A related consideration is non-compete and non-solicitation agreements. It can be smart to create severance plans for key personnel that require them to not compete or solicit personnel or customers during the period of the severance payments.

How common is failure to prepare key personnel?

According to attorneys surveyed: Very Common — 15.9%

Common — 47.7%

Occasional — 24.3%

Uncommon — 12.1%

Failing to prepare key people within the company was cited as a common or very common problem by 72 percent of lawyers surveyed. Just 12 percent said it was an uncommon problem.

MISTAKE #3: FAILING TO FINANCIALLY PREPARE THE COMPANY FOR SALE

Making sure the company's financials are as appealing to an acquirer as possible can translate into a significantly higher sales price. It's no different, really, than fixing a broken door and applying some touch-up paint before you put your house on the market.

And yet, a substantial percentage of entrepreneurs do not initially do as good a job as they could when it comes to preparing financially. A fifth of the corporate attorneys said this is a very common problem. More than half reported it to be common. Fifteen percent said it was occasional, and approaching 10 percent said it was uncommon.

Some ways to better prepare a company, financially, for a sale include:

• Improving the balance sheet. From doing a more effective job with cash management and accounts receivables to expunging nonperforming assets, a company can better manage its financials.
• Addressing the cost of funds. The right loan covenants, for example, can make a significant difference when selling a company. The overall intent is to maximize the working capital arrangements.
• Lacking audited financial statements. Failing to have audited financial statements increases the likelihood that entrepreneurs will have liabilities after the sale closes.

MISTAKE #4: FAILING TO ELIMINATE LIKELY DEAL KILLERS

There are a number of possible deal killers that can derail the sale of the business and also do not fit the previous categories.

If the company has existing tax problems, for instance, buyers will likely be reticent and push down the price. Example:The owner is paying family members for services at a much higher rate than the owner would pay a capable third party for the work. Along the same lines, if senior executives or family members are using assets of the company without reasonable compensation, there may be gift tax implications.

Another possible deal killer occurs when a company has material violations of federal, state, or local environmental laws and regulations. The potential buyer will have to fix the environmental issues—and the cost to do so is often hard to quantify or predict.

How common is failure to avoid deal killers?

According to attorneys surveyed: Very Common — 29.9%

Common — 33.6%

Occasional — 24.3%

Uncommon — 12.1%

About a quarter of the corporate attorneys reported deal killers are very common. A third reported them to be common. Somewhat fewer corporate attorneys said deal killers were occasional, and 12 percent said they were uncommon.

IMPLICATIONS FOR BUSINESS OWNERS

The sale of a business is a life-changing event that most only have one opportunity to get right. Therefore, it's crucial to avoid these types of mistakes, which can diminish the company's value in the eyes of buyers and make it harder to sell. Support from a team of industry experts is essential to help you navigate the complexities and receive the highest possible price for your business.

By getting a team in place in advance of the sales process, you might spot potential problems and address them well before engaging buyers. The end result could be a smoother transaction that positions you and your family for success.

No matter where you are in the process, managing a business sale requires careful planning before, during, and afterward. In every instance, Parcion helps families build the foundation to achieve their long-term goals, optimize their wealth event, and plan for what's next.

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