- Topline Valuation Group
Top 10 Pitfalls to Avoid When Selling a Business
You worked decades to build a successful business, and now you’re ready to sell it. If you’re like most owners, your goals are fairly straightforward: you want to sell the business for the highest possible price with the most favorable terms. You also don’t want to lose your mind when it comes time to sell out.
Issues will inevitably arise, but knowing where potential landmines lie before engaging in a sale process could be the difference between a successful outcome and being forced to pick up the pieces after a failed effort. With that in mind, I offer you the top 10 pitfalls to avoid when selling a business.
Not establishing realistic price expectations. Many owners have unrealistic expectations regarding the value of their own business. They were told their competitor sold for a high price, and they perceive their business is better so their price should be higher. Setting unrealistic expectations leads to disappointment. Work with an experienced adviser to objectively determine the components of your business that may add to, or potentially detract from, value to set realistic expectations. Remove the emotion from the valuation process.
Not properly preparing the business for a sale. Many business owners fall into the trap of waiting until they are “ready to sell” before preparing their company for sale. Worse, some owners will respond to a buyer’s inquiry without addressing the issues that exist. Proper preparation on the front end will translate into a smoother transaction, a potentially higher purchase price, and more favorable deal terms.
Not researching buyer candidates. One of the keys to maximizing shareholder value through a sale is locating the one buyer that recognizes the most value in your business. By tapping into the marketplace of buyer candidates and creating competition, your shareholders will know that you achieved maximum market value through a sale process and that you didn’t settle for the first offer that was made.
Not pre-qualifying buyers. Only select buyer candidates should be made aware that your business is for sale. Pre-qualifying buyers ensures that only the right buyers receive sensitive, confidential information about your business.
Not hiring an experienced transaction attorney. Most business owners have a trusted attorney that knows their business. There is a level of trust between council and a client that is established after many years. Sometimes owners mistakenly hire their corporate attorney to handle their sale. An experienced transaction attorney understands all facets of sale and will protect your interests throughout the process. This is not an area to save a few bucks.
Not emotionally preparing for a sale. The sale of a business is like a roller coaster ride for a business owner with its high highs and low lows. There will be a lot of twists and turns, but, unlike a roller coaster that comes to an abrupt stop after 90 seconds, the emotional experience for an owner isn’t over when the transaction closes. An owner’s role will likely change dramatically and as much as he/she prepares the business for the sale, he/she should be prepared emotionally.
Not getting the financial house in order. Most business buyers will want to closely review historical, current and projected financial statements on the business during their due-diligence process. Some owners have their financial house in order at all times. Most do not. Owners should learn what is expected up front to avoid any unnecessary confusion when it comes time to sell.
Not engaging an experienced M&A adviser. Some owners are averse to hiring an intermediary to represent them in the sale of their business. Sometimes they find a potential buyer on their own and want to save a fee. Yes, there are instances where a negotiated transaction with one buyer might achieve the best possible outcome, but an experienced adviser can help negotiate more favorable terms for you with one or multiple buyers. Owners are the experts in running their business, not selling it.
Not avoiding breach of confidentiality. Word sometimes gets out to clients, staff and/or competitors about a potential sale. It could happen intentionally or by accident, but once the toothpaste is out of the tube, you can’t put it back in. Protecting confidentiality is essential to achieving a successful outcome.
Not engaging management in the sale process. Your staff is a part of your business’ success and your management team leads the charge every day. Not engaging key people in the sale process could be a critical mistake and should be evaluated in advance of the sale process. Most buyers will want to talk to key staff members prior to a closing, and knowing this might influence your decision.
The sale of a business should be one of the most gratifying experiences of an owner’s professional career. Proper planning up front will help pave the way to a successful sale. There is no better time than the present to get started.