Tips for Selling a Business:
Common Mistakes to Avoid
Selling a business is a complex process that requires effort and preparation from the seller, especially if they want to maximize their earnings.
The more complex the procedure, the higher the chances of making mistakes. In the following paragraphs, we will enumerate some top tips for seling your business and the most common mistakes to avoid in the process:
Mistake #1: Incorrect valuation
The first and biggest mistake is to sell the business at a very low price because you were not informed or did not research how much your business is worth. You also run the risk of losing or missing out on a good offer because you asked for too much. Unfortunately, investors with a lot of money are not available at every street corner, and it may take years to receive a similar offer, or maybe never.
One of the top tips for selling your business is do your market reasearch, find out what the average multiples are in your industry. You may want to check out our article on how to value a business.
Mistake #2: Failure to prepare the business for sale
If you want to maximize the value of a business, it is advisable to prepare it for sale aka ”dressing up the bride for the wedding”. This does not mean falsifying accounting records or doing anything illegal. Instead, it means taking care of certain elements that make up a healthy business, such as having a competent management team that can run the business without you, ensuring your financials are in order, making sure that there are proper documented processes and procedures in place.
Mistake #3: Lack of confidentiality
Who finds out that you want to sell the business is a sensitive subject. Key employees may become scared, start looking for another job, and you may lose your best people before you even have a chance to discuss it with them. This will significantly affect the value of the business. Additionally, a competitor may learn about your plans to sell and use it in a contract negotiation with a client to whom you have also submitted an offer, causing you to lose the contract. These are just two examples, but confidentiality is a crucial element that has multiple ramifications.
Mistake #4: Working with unprepared consultants
The selling process from start to finish can take between 3 and 9 months. I have personally seen cases where it took 12 or even 15 months, but these are exceptions. Consultants can significantly accelerate or slow down this process. A broker who does not do their job, a lawyer who always delays documents, or an unprepared accountant are a recipe for disaster and a commonly neglected element.
Mistake #5: Selling to the wrong buyer
The reason for selling a business is essential, regardless of the motivation, but especially if there are reasons such as the desire for growth, partnership, or leaving a legacy.
Understand what buyers are looking at when buying a business. I recommend paying attention to who the buyer is. It is recommended to check the details and history behind a potential buyer/investor before accepting anything or advancing discussions. I have seen cases where the alleged buyer did not have the money for an acquisition or only wanted to take over the business to shut it down. These are just a few examples, but the list of potential clients who can bring only headaches and wasted time is quite long.
Mistake #6: Accepting a bad offer
We mentioned in point one that a mistake is related to valuation, but we left this point until the end to draw attention to the fact that a value does not mean much without a structure. For example, one offer might be one million euros on the day of signing, with a solid post-acquisition remuneration during the business handover, while another offer might be one million euros divided over three years, conditioned by the company’s performance.
Mistake #7: Ignoring your obligations
As a business seller there are certain legal obligations you have to abide to. This is applicable across all jurisdictions, but the UK gorenment has a general guideline that you can consult here. This includes: informing your staff (the timing and way you do this is crucial because this could cost you your deal — see confidentiality above — or you can startle the horses and risk losing key staff), informing the tax man, doing your tax returns and provisioning for the capital gains tax (the latter diferres from jurisdiction to jurisdiction)
Selling a business requires preparation and attention to detail. By avoiding these common mistakes, you can ensure a successful sale that maximizes your earnings.
Contact us for a free initial consultation and advice on how to buy a business.