Selling your business is a process that will take time, the help of trusted professionals, and thorough planning. Here are seven pitfalls to avoid to help ensure the successful sale of your small business.
Blunder #1: Lack of preparation
Research shows that it can take up to two years to plan and secure a successful business exit. Unfortunately, lack of preparation is by far one of the most common pitfalls that small business owners stumble into.
Don’t let this happen to you. Now that you’ve decided to sell, use this time to strengthen your business and maximise its value. Start compiling updated records, a detailed business history, and a sales portfolio, and keep these documents on hand at all times for potential buyers.
Organising your business for sale will also be instrumental in revealing the areas that produce a great amount of success as well as areas that could use some improvement, giving you a chance to address and strengthen any weaknesses.
Blunder #2: Wrong timing
We all know that life is unpredictable, and at times we may be forced to make decisions, such as selling our business, even when the timing is not ideal. However, if the reason for selling your business is within your control, it’s vital to avoid selling at the wrong time!
Before deciding to sell, ask yourself the following questions: Is the industry still growing? What are my competitors doing? Does there seem to be a trend of general industry consolidation? How are my profit margins? Is there a squeeze, or do cash flows continue to improve thanks to industry-related cost and revenue drivers?
This is a great time to enlist the aid of some trusted professionals to help you hash out the pros and cons of selling now versus later. Then, make the decision that is right for you and your future goals.
Blunder #3: Me, myself, and I
As a business owner, your plate is full. That isn’t going to change when you put your business on the market. If anything, your responsibilities will increase as you continue to manage all of your usual day-to-day tasks while also preparing your business for sale.
Thankfully, you don’t have to sell your business on your own! In fact, it is highly recommended that you take the time to find the right business broker and/or consultant to help you achieve a successful and profitable sale.
Keep in mind, however, to do your research and be thorough before hiring a specific broker. Take the time to interview numerous brokers, and look at realistic outcomes of what they are offering. Then, compare and contrast your options to make a well-informed decision.
Enlisting the help of a business broker typically adds an average of 10–12 percent to the sales price. They are also highly valuable at handling important tasks like showing the business to potential buyers, marketing, and negotiating.
Other professionals you may want to leverage the expertise of are an accountant, a lawyer, and/or a financial consultant when needed.
Blunder #4: Taking a hands-off approach
Although you’ve enlisted the help of trusted and qualified professionals in the sale of your business, you still need to involve yourself in the selling process. This may seem obvious; however, you would be surprised how many owners “check out” of the entire process once a business broker is involved.
The reality is that no one, your broker included, has more motivation to sell or inside passion and knowledge about the business than you do. Take the time to chat with your broker about productive ways you can help in the sale without getting in the way of the overall strategy and plan of action.
Plus, once you have a few qualified buyers interested, you will play a key role in instilling confidence in the buyer that the business can be purchased and managed successfully.
Blunder #5: Failing to Pre-Qualify Buyers
Early pre-qualification of prospective buyers is not only essential for a successful business sale, but it also keeps sensitive information about your company from falling into the wrong hands. Too often, business sellers shy away from requiring pre-qualification of potential buyers because they think it will hinder people’s interest in making a purchase. However, it can actually help guarantee that you will only be interacting with serious buyers who have the ability and means to buy your business.
Blunder #6: Playing with numbers
It’s understandable that as a seller you will want to portray your business in the best possible light. However, it is never acceptable to exaggerate numbers, distort projections, or even cover up problems your business has faced or may be facing. Although you may think this should go without saying, you would be amazed how often sellers find themselves alluding to a more positive scenario than what actually exists.
In truth, misrepresentations will immediately send up red flags when prospective buyers review the actual financials, and this dishonesty can lead to legal action taking place after the sale. Be sure to discuss everything with your attorney or broker before passing information on to buyers. This will help verify that buyers are receiving concise and accurate information.
Blunder #7: Failing to know the value of your business
Price is one of the single most important factors in determining how long your business will stay on the market. That being said, it’s important for you as the seller to take the time to conduct a thoughtful valuation process before assigning an asking price to your business.
This is a great time to ask your business broker for advice and even visit various website listings of businesses for sale. This will ensure that your price is comparable to other similar businesses currently for sale.
You’ve worked hard to create a successful and valuable business, so it’s only to your benefit to have the appropriate documents and materials prepared so you can defend the value of your business to potential buyers.
Selling your small business can be a daunting task. Take the time to prepare, organise, and enlist the help of experts where needed. Paying attention to the details will help facilitate the overall process and reward you with a successful and profitable sale.