Research has shown that many business owners fail to achieve the full or fair value of their businesses when trying to exit, simply through poor planning and preparation. It’s not your fault if you’re making some of these mistakes but hopefully, there’s still enough time to learn from the experience of others:-
- You’ve had enough and so you’ve suddenly decided to sell? The decision to sell a business should not be taken lightly as there could be many things to be done to try and make the chance of selling a business a lot easier. Poor preparation without up to date accounts, legal entity records and other important paperwork will simply put potential buyers off. Don’t think you can hide bad news or skeletons in the cupboard as these usually get discovered in the due diligence process – deal with the issues before you decide to sell. Struggling businesses with unrealistic financial forecasts are difficult to sell too. Buyers often string loss making businesses into receivership so always work to a realistic time scale (it can take up to six months to find a buyer and six months to sell a business) – turn a business around first and then sell.
- You’re not sure if you really do want to sell? A serious prospective buyer will be interested in the reason behind you wanting to sell the business. And if it’s not a compelling reason, they will probably go elsewhere. No buyer is going to want to waste time and money with business owners who don’t know whether or not they really want to sell, so understand the reasons why you want to sell and then make a definite decision.
- You haven’t checked the background to your buyer? There could well be many people who think they want to buy your business but many of them could be just be looking out of idle curiosity or not even have the means to do the deal. There’s no point in going through all the hard work of agreeing terms and fine tuning the contract of sale if the funding can’t be secured before legal completion! Check out the credit worthiness of your buyer and don’t be afraid to ask for proof of funding – your business broker should be able to do this for you.
- You are guessing how much your business is worth? The business may be worth as much as someone is prepared to pay for it but this does not place you in a strong negotiating position. Make sure you know how much you business is worth by taking out an independently prepared, professional business valuation. This will help you to understand whether or not it’s worthwhile trying to sell the business in the first place and enable you to substantiate the asking price. Remember, the books will be the books and whilst a Valuer can look at adjusted profit figures, don’t expect a buyer to pay for undisclosed business – if you can’t record it, you can’t pay for it!
- You’re going to obtain a free of charge valuation from a broker? Many brokers have a vested interest in providing you with a free valuation in the hope that you will sign up with them. Valuations usually take a great deal of time and thought so be wary of quick guesses, followed by undue pressure to “sign up”. Very often values have been greatly enhanced so you feel compelled to pay high up front fees as the business value has probably doubled your expectations and enthusiasm to sell. Once you have paid the up front fees and nothing much as happened you may begin to realise that the business value was not worth the paper it was written on (assuming it was written out in the first place)!
- You’re expecting all the cash up front? Whilst there are deals where all the cash is paid up front, don’t assume that this will be the case with your business. Place yourself in the buyer’s shoes and start to realise that there may be an element of risk to be covered, finance to be considered, hand-over period to be agreed etc. A premium may be agreed if the business is funding the take-over, so best to keep an open mind on how the deal can be structured.
- You’re going to pay extortionate up-front fees to a Broker? Exactly why are you going to pay thousands or even tens of thousands of pounds for a broker to have the privilege of selling your business? Because they have told you that they do things differently? That the value is in the future potential of your business? Really? No buyer is going to be stupid enough to pay double the true value of your business unless there’s some real strategic reason. Some brokers will feed off the business owner’s greed so watch out!
- You’re going to sell your business with a Broker on a “no win, no fee” basis? Sounds a sensible agreement but why? Check out the Terms and Conditions as they may be lots of small print to understand. In particular, when you’ve decided that you’ve had enough and want to take the business off the market or use a different Broker, you might end up with some horrific cancellation fees – a few Brokers are geared up for litigation, so beware! In the worst cases, your house might be at risk, even if you changed the Directors without the broker selling! Google the broker’s name followed by “complaints” and see what you find…..!”
- You’re impressed with the Broker who came to visit you? Nothing quite wrong here but check out who is responsible for selling your business. Some people are there just to “sign you up” and so you’ll never see them again! Find out exactly who is responsible for selling your business – “deal teams” often have changing staff. Which is all a bit of a problem when you want to see someone to discuss the progress (or lack of!) being made with potential buyers. Watch out for slick reports and presentations too – they may impress but could be full of mistakes – if you bother to look closely!
- You’re not going to use Professional Advisors? No one likes to spend money unless they have to but with the careful appointment of professional advisors, they can actually save you a great deal of money. For instance, a Broker can help find you suitable buyers through their connections and lists of potential buyers and investors to place you in a competitive bidding situation; a specialist Corporate Lawyer will help protect you from unfair or onerous terms within the contract of sale; a Tax Accountant can help advise on the best ways to minimise your tax liabilities (before the sale completes) and a Corporate Financial Adviser can help make sure you are getting the right advice on when to sell and how to maximise shareholder value. Make sure that your advisors have the capability of meeting your requirements, can work to an agreed budget and work within your agreed timescale.
Always remember – “If you fail to plan, you plan to fail!”