Selling a business is a two-way transaction, in which both parties need to be completely happy with the situation. There’s just so much money at stake with this sort of sale, which makes being ‘on the same page’ an absolute necessity.
We recently ran an article about potential time-wasters – the buyers who are not fully committed to completing the transaction. Other things can derail the process too. As a seller, making the wrong moves can scare buyers away, turning committed parties into AWOL absentees.
In this article, we’re looking at some of the biggest mistakes you need to avoid when selling your company – and examining how you can make sure you don’t fall into this trap.
Mistake #1 – Messy Finances
If a buyer sees that your finances are messy or unclear, they may have second thoughts about the purchase. This can include many things, like failing to properly divide up your business and personal accounts or presenting an incomplete set of records.
Forecasts can also fall into this category. If financial predictions are too favorable, without any clear evidence to back them up, possible buyers may consider this a red flag.
Fixing the Problem
Make sure your records are clear and complete. Ensure all your business transactions are handled through properly segregated accounts, and check that your financial statements are compliant with GAAP standards. Back up any forecasts you make with demonstrable statistics and evidence.
Mistake #2 – Inflated Pricing
Buyers don’t want to fork out more than they need to complete the purchase. If the business valuation doesn’t match current market conditions, the buyer is going to become suspicious. If you can’t demonstrate how you have arrived at this high valuation, the buyer is likely to back out.
As a caveat to this, underpricing can be a red flag too. A buyer might feel that the deal is too good to be true, or that you have some underlying motive that is driving you to exit the business too quickly.
Fixing the Problem
Use a registered professional to provide an independent valuation. This removes the emotional aspect of pricing your business, and you can get a more accurate and mutually acceptable figure.
Mistake #3 – No Succession Plan for Ongoing Success
A business buyer may have their own vision for what they want to do with your company. However, most potential buyers will still want to see that there is a continuity plan in place, so that the basic operations are taken care of, even after you have exited the company.
If it looks like you are holding the company together yourself, this will likely scare a buyer off. They will envisage the huge amount of work required to keep the company going after the transition, and they may decide to abandon the purchase.
Fixing the Problem
Make sure your company’s processes are all properly mapped out. Clarify the operations of your business, and show the buyer that you are not the single lynchpin that is keeping the business profitable.
Mistake #4 – Lack of Compliance
Even a relatively minor compliance problem can cause a buyer to change their mind. Something like a lease that has expired or an area of noncompliance with government regulation can put the purchase in jeopardy.
Fixing the Problem
Conduct an independent compliance audit before you sell your business to make sure nothing has slipped through the cracks. Make sure all your licenses and permits are up-to-date to remove any potential nasty surprises.
Mistake #5 – Business Downturns
It makes sense that business owners might start to think about selling up when profits begin to drop off. But this is a problem for buyers, as no one wants to purchase a business that is in a downturn.
Fixing the Problem
Make a proper plan for selling your business, and stick to this schedule rather than just following market trends. Prepare your business for sale by making it as profitable and attractive as possible, paving the way for a successful transaction.
Selling Your Business, the Hassle-Free way with The Batallan Group
Here at The Batallan Group, we have completed many business purchases over the years, and we know the process well.
If you’re interested in selling your company, reach out to our team today and discover more about what we offer.