3 Mistakes to Avoid When Selling A Business
Selling a business can be tough. Owners wishing to sell a business find that when the time comes around, there are many unforeseen obstacles and issues which can damage the chances of closing a good deal in selling a business.
Entrepreneurs whom have spent years of their lives turning their business into a commercial success find that exiting the market by selling a business, can at often times be more difficult than entering it. Every month, companies fail to sell for reasons which could easily be mitigated. After speaking to experts in the industry whom have extensive experience in selling a business and buying multiple companies, we found what top 3 mistakes to avoid when selling a business.
Deal fatigue while selling a business:
The process of selling a business can tend to get long and frustrating for both parties. The owner gets so wrapped up in selling a business that he or she tends to neglect it. John Hammett, investment banker at Corporate Finance Associates, says that could be one of the worst mistakes you make when you’re in the middle of selling a business. Taking the eye off the ball can result in a decrease in growth or a dip in backlog. Both which could have a negative impact on selling a business during due diligence, adversely affecting the deal. Hiring an expert to take care of the transaction aspects in selling a business, helps you as an owner keep the business running at its best.
Emotions rise between the buyer and the seller during the selling process, and it often happens that the business seller selling a business, under a lot of stress, neglects his or her business. Some entrepreneurs may think there’s no longer any use in fostering the company’s growth, but don’t realize that if you are selling a business you need to showcase your business at its best right until the very end.
Three ways to prevent deal fatigue when selling a business, according to Chris Younger in Colorado Biz Magazine, is to:
- anticipate the deal fatigue that comes with selling a business,
- not get too attached to the outcome, and
- take a step back and remember why you entered the negotiations in the first place when selling a business.
Selling a business with an inflated sense of valuation
A major problem with a majority of owners today interested in selling a business is that they overestimate the value of their business. When selling a business, they estimate the valuation higher than what it’s worth and then get disappointed by market offers. Steve L’Heureux is Vice-Chairman of Ryko Solutions and has worked with strategic buyers and private equity firms over the years to sell and buy companies and is well versed in the art of selling a business. In his experience, he says that the reason most deals fail when selling a business is because of “a sense of valuation by the small business owner”. The business owner selling a business refuses to get a valuation from an expert and will consistently turn down good offers, which in his mind are “unreasonable”.
A survey by the International Business Broker Association (IBBA) and M&A Source, in partnership with the Pepperdine University, found in their quarterly survey report of the second quarter of 2014 that seventy-eight percent of deals of selling a business valued less than $500,000 are terminated without closing. According to them, “unrealistic expectations” led seller errors in every sector when selling a business. This is why it is crucial that a business seller selling a business seek professional advice, early on, about the true market value of their business. It will help them to understand the amount of time it will take and recognize a good deal when it comes along when selling a business.
Poor record keeping when trying to sell a business
Businesses which do not have their records and documentation in order before they plan on selling a business, possess a major risk of the deal breaking before closing. “Once the sales process starts, there’s really very little time for house cleaning and so you really need to get your house in order before you enter into the sales process,” advises Hammett.
Poor financial records can be a deal breaker for most buyers. Smaller businesses are more prone to having inadequate and/or improper documentation, as they have a lack of discipline in following business practices and principles. That is why it is essential that those selling a business get their records and documents organized.
The due diligence period is an important step of the overall process of selling a business. It is the best way for a buyer to assess the true value and risks of your business, before buying into it.
To increase the likelihood of closing the deal of selling a business, hire a professional to get all the paperwork organized and help fill in the gaps of any missing pages. Unkempt company file’s will only slow down the due diligence process and give a bad impression of a poorly run company to potential buyers, quite possibly repelling them from entering into a deal and end hopes of selling a business at a good price.
Cerius Executives provides experienced executives who are ready for project based consulting, interim management and can act as an advisory board during the M&A Process.