Four Mistakes to Avoid When Selling Your Business
Deciding to sell your business is an important decision. As the owner of your company, you have invested endless hours of hard work, much of your time, and your resources to ensure the best possible future for the business.
There are common mistakes that sellers make when executing their sales. Tsetserra Growth Partners believes it is critical to avoid common mistakes in the process. The following are four common mistakes that sellers make, and what you should do to avoid them:
1. Lack of Preparation
Preparing to sell your business is a lengthy process that may take years to execute. From beginning to end, the process can take a year or possibly up to four years in order to reach the valuation you are hoping for. Listed below are steps a business owner should take to ensure the best outcome.
Organize all company records in preparation for an in-depth due diligence process
Potential buyers will want to look at all prior business records that govern how the business has been run as well as the current and historical financial statements during their valuation of the business. It is important to adequately prepare for this process by organizing all records.
Resolve outstanding forms of litigation
An outstanding risk devalues your company to a buyer. It is important to mitigate these risks before continuing the selling process. This includes any tax-related items or discrepancies between suppliers and customers.
Pre-qualify potential buyers early on
This can be easily started by having conversations with those that are in your network. Although many sellers believe that moving forward conversations with potential buyers too early in the process might expose that you are not ready to sell, consider these conversations trial runs for the many future conversations to come allowing you to feel more comfortable. Allowing you to be in the driver’s seat to pre-qualify the buyer you are looking for, at the same time the sale process will move along with less and less hesitancy.
2. Overvaluation
Setting a high or unrealistic price tag on a business may lead to months of frustration.
Consider your industry, similar businesses, the economy, and your marketplace when pricing your business to sell.
Many business owners that are inexperienced in selling their business may tend to overvalue their company. In fact, historically twenty percent of deals that fell through were due to an unsupported valuation from a seller. Transparency and lack of bias are important in the process of selling a business. A great way to better understand the process is to discuss it with someone who sold their business in the past 12-18 months. We also share more information about the process here.
3. Misrepresentation
Be forthcoming about potential risks and ongoing litigation.
It is the seller’s responsibility to present their company in the best light. Waiting for the buyer to find a pressing issue during the due diligence period tests the buyer’s confidence and has the potential to hinder the sale. Getting out in front of potential issues is the best possible approach. Financial statements should be accurate, outstanding litigations and potential employee grievances should be made apparent, and all taxes due should be paid. Creating an accurate representation of your business benefits you as a seller.
4. Selling to the Wrong Person
Taking the first offer may not be a wise choice as it may not be your BEST offer
The new owner may lack business experience, have a closed mind, or be a poor leader in general. The list can go on and on. Evaluate your options and make the best selection for the long-term legacy of the work you have put in.
Ask yourself, “Is this the best person to buy and run my business? Can they quickly connect with your existing customer base and learn how to market effectively?
When a business sale goes as planned, it creates a tremendous opportunity for the seller, the buyer, and the employees of the company. Wait and make an informed decision regarding buyers. It is worth it in the long run.
Closing Thoughts
There are many moving parts in the sales process. We hope these ideas provide some insight into the sales process. We hope they will help you in the future.
If you know of anyone interested in selling their business, we’d be happy to have a quick initial conversation with them to explore possibilities. Information can be shared in complete confidentiality.
