Some of the most expensive mistakes in selling a business don’t happen at the negotiating table. They happen months, or even years, before a buyer ever enters the picture.

A successful transition requires more than finding someone willing to write a check. It requires preparation, clarity around what you want, and alignment between your business, your finances, and the life you want after the sale.

Here are three mistakes we see business owners make before a transaction even begins.

1. Waiting Until You Have a Buyer to Start Preparing

One of the questions we ask business owners when we first meet with them is, “Have you ever received an unsolicited offer to buy your business?” You might be surprised how often the answer is yes.

An unexpected offer can certainly get an owner thinking about a sale. But what they may not know is whether that offer reflects the potential value of the business, or whether the buyer is discounting the business because of risks that could potentially be addressed with proper planning.

Weak financial reporting, customer concentration, owner dependence, unresolved operational issues, or a management team that isn’t prepared to lead without you can all influence what a buyer may be willing to pay. And once an offer is on the table, you may not have enough time to meaningfully address those issues.

That’s one reason we believe exit planning is simply good business strategy. The same work that can make your company more attractive to a future buyer can also make it stronger today. Building a capable management team, improving reporting, documenting processes, and reducing dependence on the owner can help create a more resilient and transferable business. And the earlier you do that work, the more time you have to strengthen the business and create options for when the right opportunity eventually comes along.

2. Focusing Only on the Headline Valuation

Price certainly matters, but it’s only one part of the equation. Some of the things that can materially change what an offer actually means to you and your family are the transaction structure, taxes, timing, retained equity, employment or consulting requirements, and the amount of risk you continue to carry after closing.

For example, one buyer may offer a lower purchase price with most of the proceeds paid at closing. Another may offer a significantly higher headline price, but tie a meaningful portion of it to an earnout based on the company’s future performance. That higher number may look more attractive at first, but achieving it could depend on results you no longer fully control once the buyer is making key decisions about the business.

That’s why it’s important to look beyond the headline valuation and understand what you’re receiving, when you’re receiving it, and what conditions have to be met along the way.

3. Entering a Sale Without Defining What You Want

Finally, before asking what your business is worth, we believe there’s an even more important question:

What do you want this transition to accomplish?

For us, that means aligning three plans: your Life Plan, your Financial Plan, and your Business Plan. Your Life Plan considers what you want your next chapter to look like and the legacy you want to leave behind. Your Financial Plan helps determine what you may need from the transaction to support that vision. And your Business Plan focuses on preparing the company to create options for how, when, and to whom you eventually transition it. When those three plans are aligned, the transaction can become a means of accomplishing your larger goals rather than becoming the goal itself.

The biggest mistakes in a business sale often happen before the transaction even begins. Preparing early gives you something incredibly valuable: options.

If you’re beginning to think about what a future transition could look like, even if it’s still several years away, we’d welcome the opportunity to learn about your business, your family, and what you ultimately want the next chapter to accomplish.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Aristata Financial and not necessarily those of Raymond James.

Any opinions are those of the speakers and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.