5 Mistakes When Selling Your Business
So you are thinking about selling your business. You have invested a lot of time, money, and emotion to get to this point: now is not the time to make any missteps. Here are 5 common mistakes to avoid when planning to sell a business.
Your business may be running better than ever and you think it is just the right time to sell, but don’t let that confidence blur the fact that there is a lot of work that goes into selling a business.
It isn’t just about finding the right buyer: properly documenting all aspects of your business is necessary to transfer the value of your company to another entity. Keep in mind, you have intimate knowledge of your business and history that no one else has the opportunity to know — unless you share it with them.
Overconfidence in the sale of your business can also come in the form of getting proper valuation. You may think you are sitting on a goldmine but have you truly done your due diligence?
A smart prospective buyer is going to look at every little detail, kick every tire, and look under every rock. And really, you should be looking for a buyer like that. After all, they are going to take control of something you’ve spent a very long time building.
Don’t you want to sell your business to someone who cares about it as much as you do?
It is wise to get a third-party valuation to take a look at the details of your business and give an objective point of view in terms of the value. Many accounting firms provide this service along with Certified Business Valuators.
You may be confident that your business can grow exponentially in the coming years but what you feel in your heart won't always reflect what is written on paper.
There are so many details to outline when it comes to selling your business. The financials are certainly a main fixture that you need to have organized for the sale.
But what about things like your customer base? Do they know what is happening and how it may affect them? What about your office lease agreement? Your software licences? The tax authority? Do you need to remove the furniture from the office?
Do yourself a favour: be over-prepared. Have more details than you need to sell your business. Spending a bit of time before will save you time (and heartache) in the long run.
3. Not Using Professionals
There are certain tasks you should not attempt without the help of a professional. For example, if you haven’t already, hire a lawyer with a specialty in business transactions.
They can inform you of countless things you wouldn’t necessarily know you have to do in order to legally (and effectively) sell a business. They will cost you money in the short term but can help everything running smoothly (read: save you money) over the course of the sale.
Another person to speak with is a third-party accountant. Your in-house accountant may be too close to the books to give an objective opinion on certain things. You will also benefit from a second set of eyes.
Regardless if you are selling computer hardware as part of your sale, it is wise to speak with an IT professional to ensure your systems are secure and in good shape. Having healthy systems can also add value to your end sale price.
You may know a lot of people, but do you know a lot of people who are in the market to buy a business? Contacting a broker will bring you more leads and can help you understand what to expect during the sales process.
“Deciding to sell your business is a big decision,” says Brad Geddes, President and CEO of Zucora, an Ontario-based furniture protection business and First West Capital client. “Be completely open and transparent about your business’ strengths and challenges. A lot can come from honest dialogue. No business is perfect, but working with professionals helps you get better.”
4. Not Qualifying Your Buyers
Even though a potential buyer will be doing due diligence on you and your business, did you consider doing the same on the buyer? It would be a huge waste of time to go through days, weeks, or months of negotiation only to find out a prospective buyer doesn’t have the financial backing to actually go through with a sale.
You will also want to understand if your prospective buyer has the right personality (and/or constitution) to take on your business. If you know that your business required you to burn the midnight oil every other week, but all your buyer talks about is how much sleep they need to get by, you may want to reconsider them as an interest.
You are handing over something that likely means a lot to you, so don’t let it go to someone who won’t be able to handle the pressures that only you truly understand.
5. Not Signing Non-Disclosure Agreements
When speaking with a potential buyer, you'll need to divulge sensitive information. It's imperative that you have them sign a non-disclosure agreement (NDA) to ensure that your financial information, and the fact that you are considering selling your business, are not public knowledge.
You don’t want someone to be sharing intimate knowledge about your business. This can de-value your company and create uncertainty among your customers. Most buyers will understand the need to sign an NDA — and if they balk at signing one, politely say, “Thank you for your time.” and move on. They aren’t the right buyer.
6. Bad Timing
When selling a business, nothing is more important than timing. Some people rush the sale and don’t maximize their value; others wait too long to sell and reach burnout, thus reducing the value of the business.
Having a thorough exit strategy in place before you are ready to sell can help mitigate this challenge. Nothing can be blamed on having a good plan in place.
Every experience in selling a business is different. But by being aware of these common mistakes, your sale is bound to go smoother than the rest. If you're considering selling your business in the near or distant future, be sure to speak with our business experts to find out the most effective ways to manage your finances through the process. Best of luck!