10 Mistakes to Avoid When Selling Your Business

With lots of blood sweat and tears, you have built a business over time which is worth something…. and now you want to sell it.

• Some would say that the hard work has been done, but you can’t take your eye off the game at this crucial time – as it could blow up in your face and cost you a lot.

Selling a business is unfamiliar territory for most business owners, so a couple of poorly timed comments or a lack of preparation could result in a material change to either the sale price, its terms or even how long it takes to solicit an offer.

With this in mind, I listed below the top 10 mistakes that I have seen cost business owners when selling their business.

1. Pitching the Price.
   Knowing what you end game looks like helps with any planning, so selling a business is no different. Understanding what the potential sale value is of your business can not only sway the strategy taken to sell it, but it can also clear the mind for what is a good offer. Take the time and get the business valued before you go to the market looking for offers.
2. It’s not all DIY.
   With the value of one of your most important assets in the balance, if you are not an expert at selling businesses – then find someone who is. They will cost you some money, but if the expertise of the professionals can leverage a 15% increase but perhaps cost you 7%, then to me that’s value. Seek out the right people, check their credentials, agree on a fee structure and then….listen to the advice that they give…..after all, that is what you are paying for.
3. It’s all in the Preparation.
   Selling a business is no different to selling a house; you need to do the preparation first. Sure you want the business to be physically clean and have suitable eye appeal, but even more important is the financial accounts, the creditor position, obsolete stock, any work place issues or outstanding legal matters. You also want to ensure that the valuable intellectual property which the buyer is seeking to acquire is correctly documented and identified, along with all relevant permits/certificates.
4. No responsibility……
   You built your business with close involvement; I recommend that you sell it in the same way. Firstly you know the business better than anyone else, so you’re an excellent reference source. Secondly, any repercussions from accidental misrepresentation will come back on you, and lastly, this is an important asset in financial terms, so you need to monitor its sale and agree with any transition arrangements.
5. Not all buyers are real.
   Only a real buyer will consummate a sale and pay the money, but pretend or wannabe buyers can cost you a lot of time and energy. The balancing act is when to qualify a buyer – do this too soon and risk scaring them off, wait too long and you risk wasting a lot of time or divulging critical information. Confidentiality agreements are the first step in qualifying a buyer, with this allowing more detailed information to be provided – but I would hold back critical info until financial ability is shown. You need to establish clearly that the potential buyer has the financial means to close a deal.
6. Misrepresentation.
   There is a fine line between being eager to favourably answer every question from a prospective buyer…and misrepresenting the facts. Areas to be careful of are around the financial data (trading numbers, forecasts etc) and value items such as client data bases, certifications, and contracts. It is advisable to have any memorandums or financial data checked by your lawyer/accountant before distribution to potential buyers.
7. Knowing your numbers.
   Important in the sale process is the financial accounts, as these play a large part in the valuation of the business. Thus it is important that your financial accounts are current, and that you (or your nominated advisor) can speak with confidence around the margins, revenue and expense lines.
8. Breaching Confidentiality.
   Confidentiality is important. If the word gets out that your business is on the market, it could adversely affect sales and your relationship with your staff. A good broker will know how to market your business whilst maintaining strict confidentiality. If you are selling on a DIY basis, this can be tougher, but still possible by pitching the sale of the business directly to a group of targeted potential buyers.
9. Consider the sale terms.
   Increasingly business sales involve more than just “cash sale” terms, often instead involving a lump sum and then a deferred payment scheme. This can be driven by tax objectives or financing requirements, but as a seller, you must remain open to at least considering these different aspects, as this increases the potential market who can buy your business.
10. Ownership transition.
    The preferred option for the majority of business owners, is to sell their business, collect their money and exit stage left. The reality is however that many sale agreements will require the old owner to stay for a period of time to ensure the full transfer of value/knowledge. So make sure that this is appropriately negotiated and considered (by you) as part of the sale agreement – inclusive of pay values, duties and duration.

Regardless of whether you take the DIY route or engage a business broker/professional to sell your business, avoiding these 10 costly mistakes will position you for an enhanced sale result. After what may have been many years of toil, you must take all safeguards to maximise the exit value from your business!