Four Most Common Mistates When Selling a Dealership16 Mar, 2005 By: Blair Post imageSource
Four Most Common Mistates When Selling a Dealership
Selling an office products dealership can be a highly emotional, complex and
difficult proposition. Nevertheless, it can be both psychologically and
financially rewarding. But you have to be careful because the selling process
can also be very much misunderstood.
Even some of the most successful and experienced business owners are unprepared
and uninformed regarding the business sale process. It is simply not something
one contends with very often. While business finance, marketing, personnel
management, and other aspects of business are recurring challenges that
entrepreneurs can master over time, selling a company is something few
businesspeople engage in more than once in a lifetime. Some of the most common
mistakes dealers can make when attempting to sell their businesses are:
Not Planning Ahead of Time
Depending on Advice from Inappropriate Sources
Believing Cash Deals are always the Best Deals
Letting Emotions Rule over Reality
Mistake #1: Not Planning Ahead of Time—Ideally,
an office products dealer should have an exit strategy at the time the company
is formed. Since that rarely happens, a good rule is to allow time to prepare
the business well before initiating the sale process. Simply put, the longer the
lead-time, the higher the value. We have seen that taking one to three years to
prepare for a sale can increase sale prices 10-25 percent. What do you do during
that time? Focus on the value drivers, and identify a specific preparation
Many would-be business sellers wait until the last minute to plan the sale of
their businesses. The complexities of the process and the fact that preparations
are necessary dictate that advanced planning is crucial to getting the best
possible price for the business.
The same dealer who spends hours and hours of research before buying a $20,000
piece of business equipment will spend a mere fraction of that time on preparing
for the sale of his or her business. A few advanced modifications to business
practices can go a very long way toward a successful business sale (See “Eight
Tips for Selling Your Biz” in the February issue of imageSource or visit
Mistake #2: Depending on Advice from
Inappropriate Sources—Few people are
experts in the business buy/sell process. Sellers often seek outside advice,
which is a very excellent policy. However, they tend to seek advice from the
wrong sources. Some typical and inappropriate sources include:
The most common source of advice on selling a business is a company's
accountant. However, accountants are not specifically trained in the process of
selling a dealership. What's more, it is not in your accountant's best interest
that you sell your business. When you sell, he or she will lose a client. This
unpleasant prospect can bias even the most objective professional.
Accountants often use a capitalized earnings-based formula for establishing the
value of a firm. This method is not always the most appropriate for small
If you do feel you need the advice of an accountant for selling a business, it
is worth considering a different accountant from the one that you usually use.
This would at least eliminate the potential bias that your regular accountant
might be subject to.
A good business broker understands the intricacies of the buy/sell process.
However, he or she would be subject to the opposite bias of your accountant. A
business broker is paid only if a sale takes place, and only on a commission
basis. Therefore, a broker's job is to assure every business is sold.
The problem with business brokers is finding a good one. There are few
regulations pertaining to the business brokering industry. While some brokers
have experience and training that add up to good qualifications to offer advice
on selling a firm, others are practicing without appropriate experience.
In most states, there is no licensing or regulation of business brokers. Just
about anyone can hang up a shingle, call himself a business broker, and open the
doors for business. In those states that do have regulations in the field, any
real estate broker can legally operate as a business broker with no further
training or licensure.
This is unfortunate because there is a great deal riding on the sale of one's
business. The complexities of buying and selling a business are considerable;
you do not want an unqualified broker handling it. However, many business
sellers list their businesses with the first broker they talk to, never asking
about qualifications, previous business sales experience, or selling strategy.
Other business sellers assume that a real estate person has all the
qualifications needed and lists the business with the "guy who sold my cousin's
When considering the sale of your business, it is a serious mistake to retain a
broker who is not trained and experienced in office products dealership
Lawyers are, in general, over-consulted on business matters, and the buy/sell
process is no exception. While some lawyers do understand the process, most
understand only the legal part of it and don't have a general understanding of
the bigger picture. Lawyers also face the prospect of losing a client if the
business is sold, so they might be subject to the same biases as an accountant.
Lawyers are essential to the process (as are accountants), but not until much
later in the process. Specifically, bring in your lawyer after you have a
prospective buyer who has made an offer or is considering an offer.
If you know someone who has sold a business recently, that person may be able to
provide good advice on how to proceed as well as offer good references for
business brokers and other professionals to use—and who to avoid.
In the final analysis, use an accountant for the financial benefits and tax
issues, and use an attorney for any legal issues and contracts. Additionally,
find a business broker that knows the office equipment business to list and sell
your company. Remember, these professionals are not qualified to value your
business. Find a trusted, knowledgeable independent valuation service to
establish an agreed upon value for your most important asset—your business.
Mistake #3: Believing Cash Deals are always the
Best Deals—A lot of dealers initially
insist on selling the business for 100 percent cash upon closing the deal. This
may sound like a prudent strategy. In reality, though, owner financing is the
magic that makes many deals happen that would otherwise fall through. Most of
the deals in which we are involved are partly financed by the owner. The percentage of owner financing usually
falls between 20 percent and 45 percent.
From the buyer's perspective, owner financing
is very attractive because:
It is easier to obtain than traditional bank
- It is a bit cheaper than bank financing
Owner financing usually does not require
collateral beyond the business itself
It provides some assurances to the buyer that
the seller is not trying to put one over on them or planning to leave them in
the lurch after the sale
Sellers typically ask: "What if the buyer doesn't pay?" The answer is that the
seller then takes the business back. While the bank wouldn't know what to do
with the business, the former owner would. So the collateral—the business
itself—has more value to the former owner than to the bank. A few other reasons
for considering owner financing are:
It increases the likelihood that there will be
Payment over time can be structured by your
accountant, so it will save on taxes or at least spread the tax liability over
a number of years
The business may be sold at a higher price with
owner financing than without it
Finally, it is important to point out that there are a number of financing
options, dependent on the owner being involved in financing, that could benefit
both buyer and seller. A fairly common one, called an “earn out,” involves
payment to the seller based on performance over a period of time. That is, the
former owner shares in the profits of the business for a few years after it is
sold. A good business broker or an accountant should be able to outline
financing strategies that would help make a deal happen to the benefit of both
buyer and seller. Insisting on an all cash deal is short-sighted and is likely
to impede the possibility of a sale.
Mistake #4: Letting Emotions Rule over Reality—Selling
a business that you have spent years of 60 hour weeks building can be an
emotionally wrenching experience. To some, it is almost as emotionally difficult
as putting one's child up for adoption. To buyers, brokers and others involved
in the buy/sell process, it is a cold and rational process. Think clearly, make
the correct, calculated decisions and do not allow your emotions to take control
when making this all-important transaction.
Regardless of whether you plan to sell your business now or some time in the
future, if you understand what your dealership is worth to you or others, you
can make better business decisions when buying, selling, planning, and/or
Blair Post is president of Dealer Valuator
in Dallas. Blair has helped dealers and manufacturers increase revenue and
company values through strategic planning. Blair can be reached at 214.231.1004,
by cell at 972.489.2046 or