If you asked any business seller out there they’d tell you selling a business is so easy. However, once they start the process it becomes apparent clear it’s not a walk in the park. Most realize selling a business at a great price within a short period of time and getting on with their life as fast as possible isn’t that easy. However, most of the pitfalls and frustrations most business owners face when selling their companies could actually be circumvented and avoided with a little planning.
With so many challenges before them, making mistakes during the selling process could be costly in so many ways. It doesn’t matter when you intend to sell your business this year; preparing well is imperative. To be on the safe side and to start off well, you might want to avoid making the following mistakes that many business sellers have made before you.
Reacting to a dip in sales and profits
For some business owners, it makes sense putting up their companies up for sale after a dip in profits. Sometimes, huge drops in business performance compel many owners to entertain the idea of selling. However, to a keen buyer out there, your investment will be viewed as a huge risk and the decision to sell it at that time would be a very poor one.
This doesn’t mean a stable though declining company cannot be sold. The acquirer might agree that with your exit the company will improve with their investment. They might actually devalue the business taking into account the fact that returns have been diminishing.
However, if you put up your business for sale after a major decline within a short period of time it’ll raise a number of eyebrows. Rather than a kneejerk reaction to sell after a significant performance decline, think about stabilizing the company first and seeking to understand why the business is hemorrhaging profits.
Most importantly, never make huge changes around six or so months before you put up the company for sale.
Emotional attachment and too strong bonds with the business
After working so hard to build your business, it’s possible to consider it as an extension of yourself or your most precious "baby". However, it might just work against you considering the strong emotional bonds that you’ve with the company. Emotional attachments have a way of clouding one’s judgment and blurring better valuation of an investment when it comes to selling.
For instance, considering all the work, resources and time invested in the company you might actually value it above what it should go for. At the same time, when you begin to think about a person capable of taking care of your business like you would you might end up concluding no one else can, or even believe that no one can run the investment like you’ve been doing for decades.
It gets even worse when you consider the legacy you’ve been building and that another person will come in and probably change a number of things. Emotional attachments to a business are critical mistakes lots of sellers make.
To be on the safe side, always keep a healthy distance away from your business to always approach and perceive your investment objectively. Always remember that a potential acquirer won’t see your business like you do.
Wrong business valuation
Of course, no one really wants to devalue a business that’s doing well and let money go just like that. Even so, a good percentage of entrepreneurs out there with stable start-ups overvalue them to their detriment. Whether it is emotions that impair their ability to be objective or other reasons, no potential buyer will purchase an overvalued investment. It’s the reason why many people seek help from experts who are impartial and logical in their valuation of a company.
Related: How to Value a Business
The danger of listing your investment for sale with an overvalued asking price is immense. You might end up losing credibility in the eyes of potential acquirers who may have been in business acquisition for decades. You don’t really want to lose buyer reliability and confidence that’s so hard to get back.
However, it doesn’t mean you should accept any price though. Simply ensure the value you arrive at is supported by legitimate methods of valuation from credible professionals.
Weak or zero exit plan
With a good exit plan the business is ready to be handed over to a potential investor. Its sale potential is maximized and all issues that sellers who run to selling their companies without prior planning miss are taken care of. In essence, exit planning ensures that the business is auditable, scalable, sellable, and transferable with all risks to performance eliminated. In the process, the seller is able to sell the investment at the highest possible price and attract the best possible deals out there.
Essentially, exiting a business is also varied. The worst thing you can do as a seller is fail to prepare your business to be taken over. A typical buyer might want a business that can run as it is after your exit and one that can be altered somewhat with ease.
It pays to take your time and invest in the business and guarantee its stability and performance. Ask yourself whether the things potential acquirers will come across are things they’d like to see. Fix what should be fixed, such as broken machinery and equipment and tidy up the place. They might seem small and trivial but capable of making the most significant impression on the potential new owner.
It also means organizing your financials, such as ensuring documents of the last three years, from balance sheets, tax returns and profit & loss statements, among others, are well organized and available. Ensure you’re able to account for every cash payment and personal expenses are not a part of the company.
Even so, note that a proper exit plan is incomplete without a comprehensive, straightforward and evidence-proven valuation showing the value of the business.
Wasting time on one or wrong buyer
As a business seller the first person who calls might be very impressive and persuasive that your eagerness to sell could compel you to focus on them alone. While the first interested buyer might be the one you end up transacting with, it can also be a huge mistake. Firstly, the individual might be the wrong buyer who might not have what it takes to complete the sale and takeover.
Also, the person might not be the perfect fit you wanted and incapable of raising funds needed. You might end up wasting so much time on them and eventually part ways without concluding any deal. At the same time, the focus on one potential acquirer might close the door on more impressive, willing, well-funded buyers. Don’t forget the more the interested business buyers the likelihood of selling at a better price and actually finding a proper fit.
As already indicated, emotional attachments to the business can be devastating even in this case; many business owners, rather than see their legacy and investment go to some stranger consider selling to friends or family members. As you spend more time with the wrong business acquirer, you hinder well-prepared and moneyed investors from making you a deal you can’t refuse. Whatever you do, give as many potential buyers a chance to approach you. Hear them out. It might end up being the breakthrough you’ve been awaiting for months.