From a lack
of preparation to proceeding without the help of a business broker, these are
some of the most common mistakes made by sellers.
Selling a business for a satisfactory return and within your preferred
timescale can be a challenging prospect. Attracting buyers requires
a focused approach, careful groundwork and realistic expectations.
Here are some common pitfalls you should avoid to boost your chances of
a successful outcome.
Lack of preparation
Owners frequently underestimate the time required to prepare for a business
sale. Most business brokers advise allowing something like two years to
thoroughly prepare for a market listing.
This allows reasonable time to formulate a viable exit strategy, which should
include an effort to make the business more appealing. For example, cutting
wasteful costs, putting your financial history in order and tidying or even
renovating your premises will positively influence the selling price.
Overconfidence
As elsewhere in your business activities, confidence can be a useful tool –
provided it is grounded in reality. Purchasers will generally only pay what
your business is worth – and their assessment of that figure will be based on
independent valuations based on profit, asset values and other measurable factors,
not on your own personal estimate.
Obtaining a professional business valuation at an early stage will keep
your expectations realistic and give you an idea of the work required to realise
enough cash to fund your next venture or a comfortable retirement.
It’s also useful to research the online marketplace to check the asking
price of similar businesses and to ask your professional advisor about the
current sales climate, prevailing trends and the factors driving prices.
Overvaluation
Any business valuation must be a logical and transparent assessment of the
worth of the enterprise. Prospective buyers will inevitably query the figures
in order to understand the applied rationale – so any significant overvaluation
will soon become apparent.
They will want to examine supporting evidence to verify profitability
and things like the value of long-term depreciable assets. To convincingly
refute accusations of overvaluation, you should adopt one of the standard business
valuation formulas based on assets, income or even
a multi-method approach – whichever suits your type of business best.
Misrepresentation
To get a good price you will naturally seek to emphasise the positive
attributes of your business. Nevertheless, avoid dubious practices such as
producing inflated figures and misleading estimates or concealing flaws. Apart
from the ethical considerations, the discovery of such deception will likely
prompt the withdrawal of prospective purchasers or maybe, if discovered post-sale,
legal action.
Therefore the safest approach is to discuss all forecasts, projections
and other sensitive information with your professional adviser before
disclosing information to a potential buyer.
Disclosing sensitive information without
a non-disclosure agreement
A breach of confidence during the sales process can be hugely damaging to your
business. If details of the sale are leaked it can unsettle key staff and
prompt customers and suppliers to defect. If you disclose sensitive information
to buyers without asking them to sign a non-disclosure agreement first, you run
the risk of that information becoming known to your competitors too.
As with many other aspects of a business sale, a skilled business broker
can advise you on screening buyers, when to introduce non-disclosure agreements
as well as what information to disclose, and when.
Deal fatigue
Because of the procedures, regulations and time involved, selling your business
will always be a marathon rather than a sprint. And to continue the analogy,
marathon runners are also more likely to quit the course.
That means patience, stamina, determination and a clear understanding of
your identified goals are essential to your cause. Administrative frustrations
and sticking points are almost inevitable, and distinguishing between temporary
setbacks and non-negotiable, deal-breaking issues may ultimately determine the
quality of outcome you achieve.
Refusing to seek the help of a
professional
Selling a business is not the same as running a business, so you’re probably an
amateur in the game. Even so, too many business owners avoid hiring
professionals in the belief that the cost-savings achieved will generate a
higher return.
But it’s a false economy. Though business brokers obviously incur fees
and commissions, having experts to handle financial and legal issues, as well
as negotiations, will invariably result in a smoother, more discreet selling
process, steering you clear of the most common pitfalls and maximising your
eventual returns.
By Melanie Luff, Online Journalist for
BusinessesForSale.com, the market-leading directory of business opportunities
from Dynamis/ PropertySales.com, the market-leading directory of commercial
property for sale from Dynamis. Melanie writes for all titles in the Dynamis
Stable including PropertySales.com and FranchiseSales.com.