The mistakes people make when selling their business tend to be errors of preparation, such as not normalising their accounts or not maintaining confidentiality during the process. However, one of the biggest mistakes you can make has nothing to do with preparation and everything to do with mindset: losing focus during the sales process.
It’s an easy thing to do. When you make the decision to sell your business, you’re bound to get caught up in thoughts of what you’ll do with the proceeds of your sale, whether that’s buy a yacht, build houses in Nepal or retire to Hawke’s Bay. The decision to sell is just the start. Selling your business is a marathon, not a sprint, and losing focus on the process could push the finish line even further out.
The Long Journey
Studies have shown that the average time to sell a business is 6 to 11 months. This is true even if all the factors, like a growth industry, strong market and profitable business, are in your favour. That’s just the time from putting the business on the market to making the sale. You must also factor in the time before then when you prepare the business, source a broker and get the marketing ready.
Losing focus during that time can affect your wages and your ability to run your business. Don’t forget that you still need to earn a living while you’re going through the sales process.
Risk to Your Sale
You also need to consider how losing focus could affect your sales. During the sales process, you will need to show potential buyers your year-to-date financial statements. If your energy hasn’t been on your business, those numbers could be lower than previous years, making it seem like your business isn’t doing well. Sales figures that are trending downward would look like a risk to potential buyers, and any offers you receive will be lower to reflect that risk.
Alternatively, the structure of your deal may change if the business seems to be struggling. Your buyer may add conditions to the sale, such as you staying to run the business for a certain period of time to make sure it reaches its potential. This will delay any post-sale plans. The buyer may also offer a lower price with earnouts, meaning you won’t get the full value of your business unless the new owner reaches certain profit milestones.
The last point to consider is the worst-case scenario: not selling your business. No one likes to think about that, but it can happen. Sometimes a recession hits, and no one is buying, or you may not get the offer you want. If that happens, you may need to continue running your business until the environment improves.
If your focus has been elsewhere to the point your business has suffered, you may find it difficult to build the business back up. This is especially true if you’ve put off operational decisions about things like staffing or large purchases, choosing to let the new owner decide. You’ll have to push back post-sale plans even further while you take the time to re-establish your company before attempting a second sale.
When you decide to sell, remember that it’s only the first step in a longer journey. Although you can think about your ultimate post-goal plans, you need to keep most of your attention on the actual sale. This will allow you to continue to grow your business and take advantage of any opportunities that come your way. A growing business is one that doesn’t look risky to a buyer. It will attract more interest and ultimately help you negotiate a better price when you find the right buyer.
For further information, contact your nearest LINK Business Broking Office.