For many small business owners it is their dream to one day to be able to sell their business and enjoy the financial rewards that the sale will bring. But for many their experience will be an inability to sell their business, being forced to accept a below market price or worse still having sold their business not even receiving payment for it.
Below are 7 mistakes not to make when planning to sell your business
1. Not planning to sell your business
If your desire is to sell your business, then you need to set a clear goal now as to what you would like to sell your business for. This will determine the likely future profit levels required by your business to justify your required selling price. Only by having a clear profit target can you develop a plan of action to achieve it. Without setting goals and working towards these you are less likely to have a business that can be sold for what you want.
2. Not planning your life for after you have sold your business
Too many business owners get excited about the prospect that someone wants to buy their business, and they don’t look ahead and ask, how much do I need to retire or what will I do for the rest of my life. Afterwards business owners often find they are bored or worse they find that the money they received for their business is insufficient to support their lifestyle requiring them to return to work.
3. Reacting to a buyers proposal
Ideally you should take your company to the market when it is ready for sale and retain control over the sales process. When you react to an unsolicited offer from a buyer you inevitably give control of the sale process to the buyer reducing the strength of your negotiating position. An unanticipated sale might expose certain weaknesses in your business that you have not had an opportunity to rectify and these may be used against you to reduce the selling price.
4. Having poor or unreliable financial information about your business
Prospective buyers require detailed financial information on your business. Not having this increases the perceived risk to the buyer, as he can’t be certain what he is buying. This always leads to one of the following outcomes: a reduced selling price, the buyer walking away or the seller being required to warrant the future profits of the business with the buyer being able to reduce the selling price if these are not achieved.
5. Accepting payment in any other form other than cash upfront
Many business owners often sell their business and accept payment over time or accept shares in the acquiring company. These types of payment mechanisms are fraught with risk. Often the buyer runs the business poorly and then is unable to pay the purchase consideration leaving the original owner with no choice but to take back a broken business or the shares in the acquiring company fall significantly in value leaving you with no business and worthless share certificates.
6. Unrealistic value
Many business owners place a value on their business based on what they need to retire on or what they have invested in the business in cash or their time. None of these have any bearing on the value of your business only the anticipated future cash flows of your business, the risk attached to these cash flows and current market pricing will influence the price. Having an unrealistic value will mean buyers will walk away leaving your business on the market for a long time increasing the pressure to sell and attracting bargain hunters. If you want to sell your business for a certain amount of money work out what profits and future cash flows you will need to achieve this selling price then put a plan of action in place to build your business to this level.
7. Not appointing an advisor
Too many business owners don’t appoint an advisor skilled in negotiating and selling a business. Whilst the cost of such an advisor may seem expensive the downside risks of not being advised could in extreme cases result in you losing the entire value of your business. Whilst in life we should always learn from our mistakes when it comes to selling your business you may not get a second chance to learn from your mistakes, rather have someone advise you who has seen and made those mistakes before.
