Mistakes happen, but when they are made selling your business, they can cost millions. Typically mistakes are made because business owners seldom possess the experience or skills to handle such complex transactions. Lack of experience is the common thread among these top 10 mistakes.

Phillip Currie

Being reactive rather than proactive

Responding to an unsolicited offer to buy the business puts you at a disadvantage for many reasons. First, you are not in the driver's seat and have not set the agenda. Second, you are likely to fall prey to skilled acquisition techniques. Receiving an offer is seductive, but entering the process has high risks. Don't dabble with your business. Your business is either for sale or it is not. If it is, you should be proactive, do the preparation and engage qualified advisors.

Stating a value/price upfront

A rule of merger-and-acquisition pricing is that whoever speaks first loses. If you state a price, you create a price ceiling. Many businesses sell for far greater values than owners expect. Buyers, even during a competitive bidding process, have major difficulty justifying a price that is higher than what the owner stated it is worth.

Conversely, you may state a value so high that it scares off prospects before you have had a chance to establish the value of the business to them. Every business has unique features and intangibles that enhance strategic value. Communicating these effectively is critical to establish value. Top intermediaries seldom divulge a price to buyers. They know how to achieve maximum value without declaring a price.

Selling for less than it is worth

In our experience and observations, owners who sold their businesses without buyer competition left 35 percent on the table. In fact, a large percentage of these never knew the true value of their businesses. The value of a business can only be established through receiving multiple letters of intent from buyers having differing motivations for owning the business.

Breaching confidentiality

The more people who know your business is for sale, the less it is worth. While this may seem counterintuitive, there can be severe repercussions from breaching confidentiality during a sale process. Employees who know often become insecure and may leave. Competitors will solicit your customers, who may bolt. And suppliers may pull back on you, change terms or cancel historical arrangements.

Negotiating on your own behalf

Sellers who represent themselves often find themselves on an uneven playing field. Buyers often use professionals, or have their own in-house acquisition teams.

Further, professionally conducted transactions are typically negotiated without owners and final decision-makers at the table. This allows the negotiators the advantage of deferring to someone else during heated discussions and preventing the emotions of an owner from interfering with the process. Emotionality equals vulnerability in deal making.

Negotiating with only one buyer

Negotiating with only one buyer gives him the advantage and decreases any incentive to expedite the process. Through delays, often strategic on his part, a buyer can reduce the price and attempt to wear you down.

Remember our observation that competition increases the value of a business by about 35 percent. Ideally, the buyer needs to know that you have other suitors waiting to take his place at the table. That enhances his motivation to respond promptly and be reasonable on due diligence issues. It also enhances your opportunity to achieve a successful transaction.

Selling to a competitor

This, too, is counterintuitive. Competitors are typically the first prospects business owners think of selling to, but they should be the last. Discussions with competitors likely involve disclosing trade and operational secrets. Once you disclose those to one competitor, you have lowered your value to another competitor, compromising any competitive bidding process. Your ideal buyer is a non-competitor who wants what your business has.

Competitors should not be approached until you have received an acceptable letter of intent from a non-threatening buyer and only when you believe the competitor will bid higher. If you approach competitors, provide them only abbreviated non-compromising information. Tell them you already have an attractive offer and allow minimal time to respond with offers.

Not knowing and maximizing your 'value drivers'

Profitability is key in the value of a business. However, there are other "value drivers" that can be just as influential. Among them are intellectual property, technology, branding, unique business processes, valued customers and future market opportunities. To better understand what we mean by value drivers and how these can influence price, take a look at the business value calculator at www.shoreline.com.

Disclosing information at the wrong time

Know the difference between descriptive information and due-diligence information. Descriptive information is used to develop interest and secure letters of intent. Due-diligence information is used to close deals. Confusing these can devalue your business. As an example, why would you show a prospective buyer a corporate tax return when you have had a strategy to minimize taxes? This is a document you hoped would make your business look its worst. Provide recast financial information up front and be prepared to justify your adjustments later during the due-diligence process.

Not starting soon enough

Ideally, a business owner will 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 an ultimate sale can increase sale prices 10 percent to 25 percent. What do you do during that time? Focus on the value drivers or, better yet, visit with an investment banker to identify a specific preparation strategy.

Wealth does not usually come from a paycheck

The wealth event in any business owner's life is a successful sale transaction. Given the very high stakes involved in selling a business, making any of the top 10 mistakes above is an expensive proposition.

Currie is managing partner of Shoreline Partners LLC, a San Diego-based, middle-market investment banking firm that handles sales of privately held companies with $5 million to $100 million in revenue and acquisitions for public companies. He can be reached at (858) 587-9800 or pcurrie@shoreline.com.