Years of running a company can take their toll. You’ve built a business that you’re proud of, but you’ve decided it’s time to move on. Whether you’re ready to retire or pursue new opportunities, the first step is selling your company.
Selling a business is no small task; during the process, a lot can go wrong. How do you ensure that your sale will be a success? Avoid these common mistakes when selling your business:
Overvaluing Your Business
When you’re determining the value of your business, try to avoid any guesswork. Use revenue statements and industry trends to determine its worth.
Another common issue is letting your attachments to the business cloud your judgment. If you’ve built your business from the ground up, you know better than anyone how much work was involved, so you might be inclined to overvalue it.
One of the most common ways to value a business is with an objective third party. This way, you can separate your emotional attachments to the business from the valuation.
Not Working with a Business Broker
If you run a company, you might be the type of person who prefers to do things on their own. Is it really necessary to hire a business broker to help you sell your business?
You know your business better than anyone. But you probably don’t know the best way to sell it. That’s where a business broker steps in. They can help you generate leads, advertise your listing, and perform all the due diligence involved with a sale.
Failing to Maintain Confidentiality
Like any other sale, you need to advertise to find potential buyers. But it’s important to do so with discretion. You don’t want competitors, clients, or employees to find out that you’re selling the business.
Jason Brice, a business broker in Vancouver, writes: “Not all leads that come in are from parties with genuine interest. Some may be your competitors, who are simply looking for more information about your business. Make sure to get any interested persons to sign a confidentiality agreement before sharing anything about the specifics of your business.”
What happens if the news gets out before you’ve actually sold the business? Some employees may decide to leave their positions before you’ve finalized a deal. Losing a key employee lowers the value of your business. You’ll have a harder time finding a buyer without your long-term and experienced staff members.
If your clients learn that your business is for sale, you could lose out on sales. They may feel uncertain if your products/services will remain the same and decide to switch to a competitor.
Selling at the Wrong Time
Have you decided to sell your business due to decreasing revenue? If so, then you’re selling at the wrong time. It’s best to sell when your revenue is trending upwards. If it’s declining, so will the value of your business.
Selling a business may take a long time. It’s not like a home, car, or regular appliance—businesses can take years to sell. Try to choose a time when things are looking up for your business, rather than down. If you’ve just lost a major client or key employee, it may not be the best time to sell.
Accepting the First Offer
Receiving an offer for your business is undoubtedly exciting. If you’re in a rush to sell your business, you might be tempted to accept the first offer that comes your way. But we caution you against it—you could be selling yourself short. If that buyer knows they’re the only one biting on your listing, they might be tempted to lowball you.
Try to be patient when selling your business. On average, the process takes between 6-9 months.
Not Pre-Financing the Deal
You can’t buy a house without getting pre-approved for a mortgage. And you should take the same approach when selling your business.
Pre-financing involves contacting banks directly to find out how much they’d be willing to lend a buyer. Based on this information, you can land on a feasible asking price for your business. This step will prevent deals from falling apart due to financing problems.
Once the deal is signed and sealed, you might be tempted to get a jump start on your retirement plans. But smoothing the transition goes a long way in helping the new owner (and employees) adjust.
Try to create an exit strategy while you’re finalizing the sale. You can stay on to train the new owner for a month or two, depending on how complex your industry is.
If you want the sale of your business to be a success (both financially and for the company) make note of these common—and costly—mistakes. Taking your time and working with a professional business broker will help you maximize your revenue.