THE TOP 9 MISTAKES TO AVOID WHEN SELLING
Has the Time Come To Sell Your Business?
If you are a small business owner who has run your business for many years, it may be fair to assume that your business has played a significant role in your daily life. You may decide this chapter is coming to an end at some stage, and you may consider selling your business.
For many business owners, the process of selling a business is uncharted territory. Many small business owners spend most of their time running the day to day operations of their businesses and put very little thought into the preparation of the sales process.
Done correctly, selling your business can be life-changing. A botched sale can leave money on the table and lead to sellers remorse or personal regret.
If you want to enjoy the selling experience and reap the rewards for all your years of hard work, here are 9 mistakes to avoid when selling your business.
1. Not being clear on why you are selling your business
Why are you selling your business? This is a very important question and one that many business owners don’t have a clear answer for when preparing their businesses for sale.
It is natural for a potential buyer to question your reason for selling. An honest answer is always best.
Some suitable answers for this question could be;
- You have owned the business for a while and are looking at retiring.
- You have full-time family obligations.
- Health issues are preventing you from continuing in the business.
- There are new opportunities to explore or you are looking for a career change.
- You want to sell while the business is doing well.
- You are burnt out and no longer want the stress and responsibility.
Why is your answer so important? Well, the potential new owner could use your answer to evaluate whether or not to proceed with the sale. If they aren’t comfortable with your answer or don’t believe you are being honest, they may simply walk away from the deal.
2. Not selling at the right time
Regardless of your reason for selling, the goal of your business sale should be to obtain the best price possible.
Timing is critical if you want to maximise your cashout price.
Many buyers want to buy a growing and profitable business. However, some business owners wait until their business is trending downwards, or they are burnt out, and then they decide to sell.
The timing in this situation usually works against you.
The problem with selling your business on a downward trend is that your valuation will not be as attractive as when your business is experiencing an upward trend.
It’s important to remember that more weight is placed on your current trends, profits, and future potential during a business evaluation than on historical performance.
You want to sell when the profits and business growth are rising. When you sell at this point, your business tends to sell quicker, gain more inquiries and sell for a higher price.
So, what are your options if your business is currently not doing well?
The first is to value your business as it stands and proceed with the sale if you need to. The timing here is not ideal, and it is unlikely you will secure an optimum sales price.
The second option is more favourable.
Focus on improving your business’s profitability and growth. Implement an exit strategy that will ensure you cash out for maximum profits.
Seek help if necessary. A business turnaround is imperative if you wish to obtain the best sales price possible. With the right help, the difference can be hundreds of thousands, if not millions of dollars.
The best time to sell is when you want to, not when you need to.
This keeps you in the driver’s seat and enables you to walk away from a bad offer that could cost you lots of money.
If you want the highest possible sales price, consider the option of selling your business whilst it is trending upwards. Don’t wait until things change and you are forced into a fire sale.
3. Not knowing how much your business is worth
“What’s my business worth?” is a difficult question to answer for many small business owners.
Obtaining an accurate business valuation is essential. Why?
Because you could undervalue your business and risk leaving money on the table, or you could overvalue it and scare potential buyers away. 27% of business sale transactions don’t close. Of those that don’t close, 30% fail because of the gap between the seller’s sale price expectations and the reality of the business value.
Business valuation can be complicated—especially considering the different available methods to evaluate your business. Most business owners fail to get an accurate business valuation prior to starting the sales process.
What should you do before you put your business on the market?
You should work with a trusted business valuation expert to determine the fair value of your business. Getting a valuation or estimate helps you gain a realistic expectation of the dollar value of your business and what your exit strategy should be moving forward.
Be aware that some agents and business brokers may over-inflate the value of your business, enticing you to list your business with them. While others may undervalue your business to attract potential buyers to submit enquiries. This isn’t always the case, but it is something to be aware of.
Knowing your true business valuation strengthens your negotiating power with potential buyers. It also allows you to stay ahead of your competitors (similar businesses for sale) and keeps you well prepared for any situation or offer that comes your way.
4. Skipping the pre-sale tidy up
Performing a pre-sale clean up is one of the best ways to maximise the selling price of your business.
It may seem odd to invest more time and money into a business you’re about to sell, but ensuring your business is in the best shape possible before selling is the best way to increase both the speed and price at which it sells.
Here are some qualities that potential buyers look for;
- A business that can run independently of the owner
- Has an existing and continuously growing customer base
- Has further potential growth opportunities
- Is well-positioned as an industry leader
- Has good cash flow and profits
- Uniqueness and robustness of the concept
- Feasibility and sustainability
- Solid supply chains
- Is not in a declining market/trend
Ensuring these key aspects are established in your business will also influence the initial valuation of your business. The possible sales price for your business is generally calculated on a net profit multiplier, with the multiplier ranging from one upwards.
The multiplier for your business is determined by many factors such as its financial history, forecast earnings, future growth opportunities, scalability versus cost base, management team, operational processes, and brand recognition.
All of these factors combined are used to determine what a potential buyer would be prepared to pay for your business.
As a business owner, you can directly influence the multiplier you receive for your business as part of the valuation process.
A smart business exit strategy specialist can help you develop an exit strategy roadmap to shape your business for sale and maximise your multipliers. This elevates your sell price, which can be life-changing.
Don’t take your foot off the pedal just because you’ve decided to sell. Your focus should be maximising your multipliers. It’s not over until your business is sold.
Preparing your business for sale may require an investment of your time and effort, but the potential rewards at the finish line will be well worth it.
5. Trying to sell your business on your own
There is a reason professional athletes and actors have coaches and agents. They get superior training and earn more money with better terms. This is the role of their advisors. Advisors can help prepare your exit strategy and negotiate the best deal for you.
Imagine yourself in this scenario. You have prepared your business for sale yourself. You are handling the negotiations and legal contracts yourself. Your potential buyers are surrounded by experts – business brokers, business advisors or financial advisors.
Who do you think will come out on top? The answer is obvious.
Selling a business is time-consuming and requires a certain level of skill and experience to maximise your cash-out amount. Attempting to sell your business on your own may sabotage your exit strategy and cause you to walk away with a price well below what you could have earned.
6. Not knowing how to negotiate effectively
Here’s a golden secret.
You do not sell your business for what it is worth. You sell it for what you negotiate.
A smarter, more experienced negotiator will usually get the better deal.
Negotiation is an art form that takes practice. It is an essential aspect of selling your business. But not everyone processes this valuable business skill set.
And this is why the experience of a professional business advisor can come in very handy during this time. A reputable and seasoned business advisor can navigate you through the traps of a negotiation process and help you secure the best sales price for your business.
7. Rushing the sale of your business
Often business owners are ready to sell their businesses well before the business is ready to be sold. The main reason is that very little thought is given to establishing an exit strategy.
The process of selling your business takes time. In an ideal world, you’ll have a comfortable timeline ahead of you to prepare your business correctly for exit. Establishing a growth plan and focusing on maximising profitability and increasing multipliers will make your business more appealing to potential buyers – but preparing an exit strategy doesn’t happen overnight.
Sometimes health concerns or other pressing personal issues might be the reason for a quick sale. If you have the luxury of time, don’t rush the sales process.
How long will it take to sell your business?
There is no definite answer for this. A sale could happen in a few months or a few years.
Decide what your goal for selling is – to get rid of the business as soon as possible or cash out for maximum profits.
If you want the latter, don’t rush the process – get professional advice now and start establishing an effective exit strategy. Start with a business valuation estimate and an earning forecast for your business. This can help you make positive changes to your business now to achieve a higher sales price.
8. Not getting your financials in order
Your financials are an essential part of establishing a valuation for your business. Ensure these are up to date, in particular, have financial statements (balance sheets and profit and loss statements) going back at least 2 to 3 years.
Ensure all your debtor and creditor payments are up to date. You don’t want a large amount of money outstanding in overdue invoices during the negotiation as it may appear you are not in control of the business finances and your accounts.
Having up to date financial records will demonstrate your ability to accurately monitor and manage your financials which could encourage the buyer to have more confidence in the financial performance of your business and the business valuation.
Take control of the business selling process by getting everything organised prior to the sale; otherwise, you could lose value at each stage of the process. Without organisation, planning and a proper valuation of your business, there could be risks and surprises at every turn.
Not being organised could result in a decreased business valuation, an extended negotiation process, an increase in the complexity of the sale of the business and an increase in the possibility of not getting the maximum cash price.
9. Not hiring the right advisor
Creating a successful business requires a specific set of skills. So does successfully selling a business. Finding the right advisor is one of the most important decisions you’ll make and one that can mean the difference between hundreds of thousands, if not millions of dollars, in your final sales price.
The right advisor can walk you through each step of the process, guide you on what to watch out for, and show you best practice strategies and procedures to ensure the best possible outcome for the sale of your business and your buyer.
It really is worth the time to find the right professional for you and your business.
You have invested money, blood, sweat, tears and years of your life into your business. Are you curious about what it is worth?
Many business owners sacrifice years to build their businesses and then sell for a fraction of what their businesses are really worth.
At Ideas Into Business, we specialise in helping business owners discover the true potential value of their businesses and help them prepare an exit strategy roadmap to shape their businesses for sale and be sell ready for maximum profits.
You are working hard in your business each day but are you focussing on tasks such as sales and profits to get through the day, or are you focussing on creating a valuable asset that can set you up for life?
This difference is life-changing because you are unlocking the real wealth in your business. This should be your reward for all your years of sacrifice and hard work.
Want to ensure you don’t sell for a fraction of what your business is really worth?
It’s a lot easier than you think.
Let’s begin by discovering what your business is worth with our quick and easy, no-obligation FREE Business Valuation Estimate.
There’s no obligation or complicated questions, and your information is completely confidential.
As always, I wish you all the best.