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Selling a business is one of the most complex sales to make. Sell a car and the facts are there in front of you – the age, the mileage, the rust, the tax. Selling a business takes a little bit more, every facet needs to be thoroughly considered and investigated.
Buyers can get cold feet at any time, and all manner of things can throw a spanner in the works. It pays to be prepared, so we’ve compiled a checklist of the biggest mistakes sellers make when putting their business on the market:
[/cs_text][cs_text] 1. Wrong Price
If your valuation is too high, buyers won’t take you seriously and won’t investigate the opportunity. When there’s no interest, you’ll be forced to either remove yourself from the market or dump the business below the going rate.
Likewise, if your valuation is too low, you’ll be selling yourself short. Most sellers have no idea of their market value, so the only way to find out is to get a no-cost appraisal from a business broker. Alternatively, we can recommend independent surveys by bank-approved valuers.
2. Inadequate Financial Records
Private businesses will record accounts which minimise taxes, but this consequently means that minimum earnings are also recorded – generating a low valuation when you sell. The answer isn’t to pay more taxes, it’s to keep comprehensive records that can be recast to show the true cash flow.
Items such as spouse’s salaries/expenses should be kept separate from the usual business expenses, allowing the buyer to see a clearer picture of the financial health of the company.
Even if selling isn’t on your agenda, you should still keep comprehensive records, because buyers typically look back over the past three to five years’ accounts. Who knows what the future may hold?
3. Indecision
If you’re not 100% committed to the idea, don’t start the selling process. The reasons for doing so must be firm in your mind, and you must be determined to get the best deal.
Whether you’re solely selling for money, wanting a quick exit or thinking about retirement, you must be mentally prepared to sell.
4. No Proper Qualification of Prospective Buyers
The first two questions a buyer asks are “Why are you selling?” and “What are the financial results?”
You should ask prospective buyers the equivalent questions – “Why are you buying?” and “What is your financial situation?”
If they don’t have the finances in place, don’t waste time talking to them. Serious, qualified buyers are happy to show their financial information and to have credit checks performed.
5. Selling to the Wrong Buyer
Both buyer and seller must be enthusiastic about the deal, otherwise the chances are it won’t go through – if the chemistry isn’t right, everything could collapse.
Other mistakes include selling to competitors, employees, suppliers or customers.
Competitors seldom pay full price for a company, and if the deal falls through, a great amount of confidential information is lost.
Employees wishing to buy the company may not actually have sufficient finances in place.
Suppliers and customers have the problem of becoming competitors to their suppliers and customers when they integrate backwards or forwards, jeopardising the seller’s customer base.
The best buyer is a cooperative, synergistic one that fits with your company. The best transactions for sellers are when two or more synergistic buyers actively vie to purchase.
6. Demanding Cash-Only Deals
Buyers will pay substantial premiums for seller financing, and sellers should be open to such proposals. Some sellers say they’re not going to sell to anyone proposing to pay with future profits, but this is incredibly naive. Buying a business is like any investment; it has to pay for itself, or the buyer won’t buy.
7. Trying to Sell it Yourself
Selling a business is a complex legal, financial and time-consuming process.
There are buyers to be found and ‘qualified’, there are prospectuses to be written, and there are numerous issues to be resolved. The three overriding points to consider are:
Confidentiality
You do NOT want your staff, customers, competitors and suppliers to find out your business is for sale, because this creates instability. Staff may leave, customers may go elsewhere, competitors will gossip, and suppliers may refuse credit.
Your Time
You might have to deal with timewasters who could upset staff, customers and suppliers. The Business Board will weed them out and ONLY introduce you to serious, ‘qualified’ buyers.
Advertising Costs
If going alone, you’ll have to incur substantial advertising costs.
8. Negotiating Too Hard
You should negotiate hard, but not to the last penny, as you still want the surviving company be successful. As a skillful negotiator, you will work to have a ‘win-win’ situation where everyone leaves the transaction happy.
9. Poor Timing
There can be substantial variations in selling prices, dependent upon business or profit cycles. All things being equal, you should sell on the upside of the business cycle, near the top, just after a record year of profits.
10. Lack of a Business Plan
Buyers buy based on their perception of the future earning stream of the company. The buyer, as part of the evaluation process, will prepare a business plan, but the seller is actually much better positioned to offer an accurate picture. A business plan, with well-reasoned and documented market and operating information, will go a long way to convince a buyer of the long term future of the company.
Planning ahead with reasonable targets can encourage buyers to agree prices that are based on future projections rather than past history.
[/cs_text][cs_text]Correcting these mistakes before putting your business on the market will ensure a higher valuation and a much smoother, more timely transaction.
Speak to a Business Board advisor on 0845 337 3327 if you have any questions at all on the above, or indeed if you wish to discuss other related matters. [/cs_text][/cs_column][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/3″ style=”padding: 0px;”]