Selling a business can be a complex and daunting process. It requires careful planning, preparation, and execution to ensure a successful sale. Unfortunately, many business owners make common mistakes that can jeopardise the sale or reduce the value of their business. In this article, we'll discuss some of the most common mistakes to avoid when selling your business.
Not Preparing Early Enough
One of the biggest mistakes that business owners make when selling their business is not preparing early enough. Selling a business can take several months or even years, depending on the complexity of the business and the market conditions. It's important to start planning and preparing for the sale at least 12 to 24 months in advance. This could be preparation in a number of areas that span the entire business, it is not just about the financial aspects of the business, though important, it is about preparing the business as a whole for a sale. This is at the core of Dexterity Partners’ Fit to sell and fit for the future analysis, we ensure that right at the start of any sale process that the business is ready for any sale. We identify potential issues, help to resolve them and in doing so increase the likelihood of a successful sale and the value of one.
Not Getting Professional Help
Selling a business requires a team of professionals, including lawyers, accountants, and business brokers. It's important to get professional help from the start of the process to ensure that everything is done correctly and to maximise the value of the business.
Overvaluing or Undervaluing the Business
Another common mistake that business owners make is overvaluing or undervaluing their business. Overvaluing the business can make it difficult to find a buyer, while undervaluing the business can result in lost profits. It's important to have a realistic valuation of the business based on current market conditions and future projections. This is however much easier said than done. When it comes to finding what the market value of the business is, you can analyse the financial information, make projections and use a framework to reach a valuation, but it is only when you go out to market and invite other to make an offer for the business that you find out what the true value is and what other will pay for it.
Not Keeping Accurate Records
Accurate financial and operational records are essential when selling a business. Buyers want to see detailed financial statements, tax returns, and other important documents to assess the value of the business. Not keeping accurate records can result in delays, lower valuations, or even the loss of a potential buyer. This step is key to what we do at Dexterity Partners, we ensure that at the start of any deal we have accurate and up to date financial records that can be relied upon by all parties. This is vital to making sure the process goes smoothly and if the business does not have good, accurate records, any buyer is going to be nervous about relying on it and thus will most likely result in depressing any valuation of the business.
Not Maintaining Confidentiality
Maintaining confidentiality is critical when selling a business. Business owners should only disclose information to potential buyers who have signed a nondisclosure agreement. Failure to maintain confidentiality can result in lost customers, employees, or damage to the business's reputation.
Ignoring Legal and Regulatory Requirements
Selling a business requires compliance with legal and regulatory requirements. Business owners must ensure that all licences, permits, and contracts are up to date and in compliance with the law. Failure to comply with legal and regulatory requirements can result in costly fines, lawsuits, or even criminal charges. This will undoubtedly cause a deal to fall through if not addressed, there is no way around the laws and regulations, you must make sure you are fully compliant. No buyer is going to complete a deal if there are potential legal issues - so being on top of everything is key.
Failing to Address Employee Concerns
Employees are a critical part of any business, and their concerns must be addressed during the sale process. Failure to address employee concerns can result in lower morale, decreased productivity, and even the loss of key employees. Business owners should be transparent with employees about the sale process once the time is right in the process and provide them with reassurance about their job security. This is a very difficult one to judge, too early on and it may cause unnecessary disruption and nervousness, but if the key management and employees are not told until the deal has been completed then it may cause distrust and panic about the new owners and the business in general going forward.
The judgement here is down to you and who you tell and when you tell them will depend on the individuals and the business. However usually the key management and personnel are the ones who are told at some point before the deal is completed, either at the very start in some cases but often it is not until very close to completion when it is starting to look like a certainty that the deal will go through. It’s always a hard one to judge and getting the balance right is hard.
Not Preparing for Due Diligence
Due diligence is a critical part of the sale process, and buyers will conduct a thorough examination of the business before making an offer. Business owners should prepare for due diligence by organising financial and operational records, addressing any legal or regulatory issues, and identifying potential risks and opportunities. For more information on this step of the process see our article on Due Diligence guide.
Being Too Emotional
Selling a business can be an emotional experience for business owners who have invested time, money, and energy into their business. It's important to remain objective and focused on the sale process to avoid making emotional decisions that could harm the sale. The key here is to make sure you are from the outset selling the business for the right reasons, and you know yourself that you have made the right decision. So when the emotional aspects appear you can go back to the logic and process that led down this path in the first place, as no matter what you think at the start - the process will be emotional at some point before it is finally sold.
Not Having a Plan for After the Sale
Finally, business owners should have a plan for after the sale of their business. This could include retirement, starting a new business, or pursuing other interests. Failing to have a plan for after the sale can result in a lack of direction or purpose, which can be detrimental to personal and professional well-being. In addition it can also affect the final stages of any deal, as the owners start to get nervous, uncertain as they realise that they do not have a plan for the future post sale and what has been their everyday life and focus is going to go away.
Conclusion
Selling a business is a complex process that requires careful planning, preparation, and execution.Here at Dexterity Partners it is what we specialise in. Our fit to sell and Fit for the Future analysis helps to identify and resolve the potential issues in a deal at the very start of the process.
This helps to smooth out the process and increase the chances of the deal being successful and completing. There are many potential pitfalls and mistakes that you can encounter when going down the route of selling your business, and what is key is you take the time to plan and prepare and address any issues early and head on.
So when you get your offer and the buyer is keen to make the deal happen, nothing surprising pops up that can jeopardise a deal and you can get things over the line and make the sale successful.