8 pitfalls of selling your business (and how to avoid them)

This is part of the series, “Sell your business tomorrow,” which is designed to guide leaders through the critical steps required to exit their business successfully on their own terms. From building a scalable business and preparing for due diligence to understanding legal structures and optimizing tax outcomes, each installment provides practical insights and actionable strategies to ensure a smooth, profitable, and strategic exit.

Exiting a business is an intricate process, and many founders unwittingly stumble over key missteps that can entirely derail their plans. The good news? With the right knowledge and preparation, these pitfalls can be avoided. 

In this installment of our series, I’ll highlight some of the most common mistakes I’ve repeatedly seen founders make during the exit process and offer actionable advice on how to avoid them for a smooth and successful transition.

One of the most significant errors founders make is waiting too long to start preparing for an exit. Many leaders wait until they’re ready to sell before considering the steps involved in positioning their business for sale.

How to avoid it: Start preparing your business for exit well in advance; ideally, 3-5 years before you plan to sell. This gives you ample time to build a scalable business, streamline operations, and implement systems that will appeal to potential buyers. Develop an exit strategy that encompasses financial planning, leadership development, and a well-defined timeline.

Recommended reading: Why you should run your business like you’re selling it tomorrow

Many founders mistakenly believe that the success of the business is solely tied to their expertise and vision. However, when it comes time to sell, buyers are looking for companies that can run independently of the founder.

How to Avoid It: Develop a strong and capable management team that can run the business effectively without you. A company with a skilled leadership team is much more attractive to buyers, as it shows sustainability and minimizes risk. Start delegating responsibilities early, and invest in your team’s growth to ensure they’re ready to step up when needed.

Recommended reading: Clarity beats control: designing teams that don’t rely on constant oversight

A business with unclear financial records, unorganized contracts, or disjointed operational processes will scare away potential buyers. Too often, founders overlook the importance of keeping detailed, organized records and operational procedures.

How to avoid it: Ensure that your financials are transparent, accurate, and up-to-date. This includes audited financial statements, tax returns, and a clear breakdown of company expenses and assets. Standardize your operational processes, including employee policies and contracts. This level of preparation will instill confidence in potential buyers and make the due diligence process smoother.

Recommended reading: Planning a business exit? Prioritize preparedness over potential buyers

Founders often overestimate the value of their businesses, driven by personal attachment or overly optimistic projections (usually stemming from building value on a future-looking projection, rather than a foundation of trailing actual financial performance). This can lead to setting an asking price that is either too high to attract buyers or too low to achieve a desired maximum return.

How to avoid it: Get a professional business valuation before you list your company for sale. Work with financial advisors, accountants, or business brokers who understand the market and can provide an accurate estimate based on real data. Be prepared to adjust your expectations and price accordingly to meet market realities.

Business exits involve a variety of legal and tax considerations, and founders often overlook these until it’s too late. This can result in unfavorable tax consequences or complications with the legal structure of the deal.

How to avoid it: Consult with tax advisors and legal experts who specialize in business exits. Ensure that you understand the tax implications of selling your business, such as capital gains tax, and structure the deal to minimize tax liability. Take steps to protect intellectual property, contracts, and any other legal issues that could complicate the sale.

Founders often focus too much on what they want from the sale, whether it’s the highest price, the quickest deal, or the least amount of hassle. All of this without considering what buyers are looking for. Buyers are not attached to your business; they simply don’t see it the same way you do. They will assess your business based on risk, profitability, trailing financial performance, operational efficiency, and scalability. 

How to avoid it: Put yourself in the shoes of a buyer. Understand what they’ll be looking for: a business with a clear path to industry-expected profitability, minimal operational risk, and room for growth. Focus on highlighting these aspects in your pitch and ensure your business is as appealing as possible from the buyer’s perspective.

Employees are often left out of the exit conversation until the deal is almost finalized. This can lead to anxiety, uncertainty, and even key employees leaving at the worst time.

How to avoid it: Be proactive in communicating with your team. Address their concerns early on, and be transparent about the potential changes ahead. Implement retention strategies such as bonuses or equity offers to keep top talent engaged and committed during the transition. A smooth transition will depend largely on your employees’ confidence in the company’s future.

Selling a business is an emotional experience for many founders (and almost all of them swear it won’t be when the time comes). The attachment to the company they built can cloud their judgment and decision-making, making it challenging to navigate the exit process objectively.

How to avoid it: Recognize and manage the emotional aspects of selling. Keep a clear head and stay focused on the business’s long-term health, rather than letting sentimental attachment cloud your judgment. Seek advice from trusted mentors, advisors, or business coaches who can provide a neutral perspective and guide you through the emotional highs and lows of the exit process.

Exiting a business is a complex process with numerous potential obstacles, but by avoiding these common mistakes, you can ensure a smoother and more successful transition. By planning early, building a strong team, keeping your financials in order, and understanding the buyer’s perspective, you’ll set your business up for a successful exit that aligns with your goals. Prepare ahead of time, and avoid these common pitfalls to make the exit process a strategic, profitable, and rewarding experience.