Most businesses don’t last forever and there are many reasons for selling your business. It’s not a question of whether you will exit your business but rather when and how. There are many exit strategies for business owners but one of the most common is by selling the business. Just like starting your business, selling your business is not easy, there are many difficulties that come with preparing your business for sale, valuating the business, and finally closing the deal. There are plenty of questions that you will need to answer along the way.
Mistake 1: Not Planning Ahead
Not planning ahead can cost you money by gaining less from the sale of your business or scare off potential buyers. You should always be prepared ahead of selling your business to get the maximum possible return for selling your business. If you know you will be selling your business a year in advanced, you will do the proper preparations needed to make the business sale worthy.
Most buyers are after a business that they can run without having to do all the work required to set up a new business (otherwise they’d just start their own.) These could include training staff to ensure they can run the business with the new owners, preparing manuals, and making systems more efficient. No-one wants to buy a crumbling business that grinds to a halt after the previous business owners stop working so you really want to make sure that the business runs smoothly prior to changing hands.
Mistake 2: Waiting too long to sell
Small business owners generally only have a family to succeed. If you have a feeling that you won’t be able to keep running your business due to personal circumstances, start preparing to sell. Don’t wait until you are in a position of weakness to try to sell your business in a hurry. In that scenario, you won’t get a premium sale price for your business. Your business is generally only valued a multiple on your earnings, so if you wait too long and your earnings drop, then your business valuation will drop as well.
Mistake 3: Choosing the wrong broker
Choosing the best business broker to help you sell your business is crucial to your success. Most business owners go with the first person they meet just to list their business but would you pick the first real estate agent you find to sell your home? The wrong choice might cost you $10,000s. Don’t choose a broker that just sits and waits for the business to be sold, find a proactive one that is creative in advertising and selling. Interview several brokers and find out how they sell and compare their fees.
Mistake 4: Not selling or promoting yourself
It’s good that you’ve chosen a business broker but thinking a broker will do all the work in promoting your sale is generally a terrible mistake. You are the best promoter for your business as there is no-one that knows your business better than you. Your broker won’t be as passionate or knowledgeable about your business than you. A good broker will get you some interest, but it’s vital that you continue to promote yourself as well. Facebook marketplaces, groups, Gumtree are all good places to start.
Mistake 5: Asking too much or too little
If you haven’t watched Shark Tank, do yourself a favour and watch an episode tonight. Entrepreneurs that ask too much never get an offer and asking too little means you get ripped off. You need to do your own research and work out what you think is a fair value for your business. Be as objective as possible and be honest when performing this exercise.
Once you have a fair price in mind, you can work around it by adding a few extra dollars to your price and cutting if need be. Don’t be delusional and expect too much just because you spent lots of time on the business. Asking too much will delay the time it takes to sell your business as there will be much fewer people interested in a business that is overpriced.
Mistake 6: Selling to the wrong person
Never sell to someone just because they’re the only offer. It is incredibly enticing when you are in a bad place but sometimes you need to exercise your grit and hold firm. Sometimes a buyer might offer a higher price in return for finance from you. Selling your business for top dollar with little or no money down along with an extended contract may lead you to lose it all. The best thing to do is to always evaluate your offers based on the risk and reward.