Selling a business is different, unless you are a serial entrepreneur and have sold numerous businesses, let me tell you that this is something unlike you have ever done before. In many ways you can compare selling your business to a Game of Poker, having the best hand doesn’t guarantee that you will win or even if you do, that you could maximise how much you win. The same applies with your business, you could have a business that has the most potential and better than any other comparable business, however if it is not well prepared and you don’t execute the sale well you could end up leaving a lot of money on the table.
Being Unclear On Why You Are Selling. Common reasons for selling are health, retirement or the need to pursue other interests. In reality most business owners sell because they are simply burnt out by working more hours and earning less money. Equally important is understanding what’s next. What are your specific plans after the sale, what will you do and how will this be financed?
Not Getting the Right Advice. Just because you are the expert in running your business, doesn’t mean you are the expert in selling your business. You need to build a team of trusted experienced advisors to help you through the process and make sure there are no hidden surprises like an unexpected tax bill! Your team could include an accountant, lawyer, business broker, bookkeeper, business advisor and financial planner. Many people refer to people on their team as “deal killers”. You need to remember that their role is to provide you with the best possible advice to make a well informed decisions and at the end of the day it is your decision to make.
Having an Unrealistic Price. Undervaluing or overvaluing your business will result in a less than satisfactory outcome. Do not make the error of being over-confident and valuing your business based on all the hard years you have put in, or the amount of money you need to pay off debt or retire on. Get expert advice from a qualified advisor. If you undervalue your business, prospective purchasers could believe there is something wrong with the business. Your business will sell quicker if it is priced correctly.
Being Unprepared. Just as you would prepare your home for sale, the same applies for your business. First impressions count, getting rid of the clutter, giving your business a spring clean and even possibly a coat of paint all help. With a business other factors you need to consider include making sure your financials reflect the profitability of the business. You have up to date contracts with staff, customers and suppliers, well documented systems and processes, a business plan and budget. The more of these things you have in place the more valuable your business becomes.
Selling At a Low Point. The best point to sell a business is when it is running well and is near its peak. A business investor wants a great business that works and still has potential. A business that is showing low or no profits, without a predictable income, where the business owner is working 80+ hours per week and is listed as having ‘potential’ is not an attractive offer. Your business will sell for a great price and quickly if it is profitable, you are not the epi-centre of the business and the buyer can see potential.
Rushing the Sales Process. Your business could take 2 or more years to sell. Having a sales and marketing plan to sell the business which will attract a number of quality buyers and a working business plan to keep the business going during the process is essential. It is easy to become distracted during the sales process and if you don’t keep your eye on the ball you may not have a business to sell!
Negotiation Breakdown. The hard work has been done and the business is almost sold. There are 3 factors that result in not selling, the first is not being clear on what you will do next. If your reasons for selling are not clear and you do not have clarity on what you are going to do next, the sales process will stall and could stop. The second is not being flexible in payment terms. For most owners, securing a cash sale is ideal. In reality, many finance institutions are not willing to take a large risk. Consequently, vendor finance, deferred payments and a transition process is normal for the large majority. Be aware that this may be an option. Lastly an unwillingness to negotiate an agreed outcome. You risk losing the sale if your emotions are involved or you are not willing to negotiate. Having a skilled negotiator who is well experienced in negotiating business sales is crucial.
In my next newsletter you will learn how you can dramatically reduce the amount of e-mails you receive – Until next time, Sam Harrop