Looking to sell? Here are the most avoidable mistakes selling businesses!
In business sales, there are some very basic rules that apply and then there are the common, most avoidable mistakes when selling businesses that re-occur time and time again.
You will only have one chance to sell your business successfully. Using the service of a business broker will avoid a disappointing outcome. I have listed in this blog the most avoidable mistakes when selling businesses to ensure you get it right the first time.
Mistake #1: Revealing very little information about your business
Fix: Answer the Four Fundamental Questions (at least!)
Investors will take less than a minute to look at your teaser/online profile and decide whether to proceed or not. It is therefore important to present an attractive, comprehensive view of your business to enable the investor to make an informed decision. At the same time, be careful about conveying too much of information. Unless specifically asked, you should stick to explaining your business and not the entire industry as most investors/buyers would have already researched this. While investors have varying individual criteria, make yourself investment-friendly by answering the Four Fundamental Questions in your profile/teaser:
- What exactly is your business?
- What is the asking price?
- What is the profitability of the business?
- What is the Return on Investment?
NOTE: There is no need to reveal any confidential information, such as business name and location. You should request the buyer/investor to sign a non-disclosure agreement before sharing confidential details.
Mistake #2: Projecting unrealistic future growth
Fix: Present pragmatic assessments and plans
Unrealistic goals and projections repel investors and make the business owners look inexperienced. We have seen businesses that project very high revenues compared to their previous revenues over dozens of years of operation.
While it is good to have ambitious targets, you need to provide realistic, well-researched, and acceptable projections and plans to investors.
Mistake #3: Expecting sky-high valuations
Fix: Use an experienced Business Broker
Potential for $100 million in revenue does not equal a valuation of $100 million. The balance between being ambitious and being greedy can be quite fine. In my experience, with a sky high valuation will have the same outcome than going to market at a fair price but the only difference is the time frame it is going to be sold. My top tip is to go with a fair market valuation; get a buyer on paper and make the process as easy as possible.
Understand why a person is buying your business and understand how they view your business. I.e. are they buying a job or an investment; are they first-time business buyers or do they fully understand the process.
Mistake #4: Low responsiveness
Fix: Be available, prompt and serious about the deal
In a merger/acquisition, we have busy people on both sides of the table. When one of them is available, the other may not be and vice versa. This leads to delay. In such cases, it is important to have a good part of initial conversation over email and then have key conversations over phone, video call or face to face meetings.
Having a Business Broker involved will save you money and time; They understand the process and the urgency of the sales process. Besides that, they have no emotional involvement and look at every contact from n objective point of view.
Mistake #5: Not ready with key documents/information
Fix: If you want a deal, keep all documents ready for it
Most business deals fall over because of a lack of planning the sales process. To begin meaningful conversations, buyers/investors will need a few key documents such as an Information Memorandum and verifiable accounts to shortlist the opportunity. During due diligence process, buyers/investors will require additional documents such as Registration Certificates, Trade licenses, Financial statements, Projections/Targets, Valuation reports, Client contracts, etc.
Making the investor wait for you to process these documents leads to decline in investor interest, concerns over your planning skills, and might result in a no-deal.
NOTE: Don’t forget that most business buyers are looking at multiple opportunities. You want to stand out by means of having the best communication, being the easiest to deal with and getting the basic questions answered.
Mistake #6: Appearing to be unprofessional
Fix: Communicate effectively, validate trust, and respect your investor/buyer
While interacting with investors/buyers, keep in mind that your behavior reflects greatly on your business. Displaying good communication skills with investors reflects positively on you and your ability to interact with your business’ stakeholders effectively. Make sure you perform a basic spelling and grammar check before hitting the send button.
Being late for meetings, committing to some work and not keeping your word will make investors lose interest in you (and your business!). It is extremely important to be accountable while interacting with investors/buyers.
We understand that you are an entrepreneur and have built a business all on your own, but you need to respect the buyer/investor. Instead of a generic ‘if you’re interested, call me’, being genuinely involved while interacting with buyers/investors will help you close the deal successfully. Even if you are the next Facebook, keep the ego aside and focus on building meaningful relationships. It will payoff some way or the other.
Mistake #7: Suspecting buyers/investors excessively
Fix: Do a background check- and then stay positive!
Business owners become over-protective of their business and start seeing every buyer as a potential competitor. While it’s important to conduct a background check of the buyer/investor and know who they are, having a positive attitude while speaking to them makes a difference. Business owners who believe that the buyer/investor they are speaking with is the one who will close the deal, are the ones who actually close the deal!
Equally, don’t be too picky who will purchase your business. All too often I hear business owners dismissing a buyer after one meeting; not being the right fit for being the next owner. The truth is that most potential buyers will qualify themselves and know what their strengths and weaknesses are.
We have seen many deals fail at the brink of being closed due to business owners committing these common mistakes, and we’d like you to be aware that getting these small things right leads to faster deal closures. A successful closure can be attributed to being practical and being proactive. Business owners should follow this religiously or appoint an expert adviser who will take care of the intricacies of the process from end to end.
Whatever you do to sell your business, always get a good team of advisers behind you. They can foresee many mistakes and avoid a disappointing outcome. Remember that the cost of NOT having a good adviser can be far greater than the cost of having the best advice possible and pay them well for that advice.
Written by Rudy Kokx – LINK Northland NZ June 2017
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