Mistakes to Avoid When Selling Your Business
“Planning for the business sale process could be the difference between thousands of dollars in your pocket.”
Small and medium sized businesses are hitting the market for sale ever so more, now that large parts of the world are moving into vaccination schedules. Many business owners who were looking to retire in 2020, and who held off because of Covid-19 are now looking to list their businesses for sale. Assuming you already have a pretty good idea of your valuation for the business itself, navigating through the process can get a bit tricky, and its important to have a great advisor or broker helping you through the process. From our experience we have listed a few common pitfalls that come up both before and during the process.
Not Planning ahead enough or waiting too long to sell
As the adage goes – “Strike when the iron is hot”. But when is that right time? We work on succession planning with business owners on a day to day basis, and much like with anything you are only as strong as your plan and the goals you set out for the foreseeable future. Therefore, it is crucial to start planning sometimes even up to 3 years out to ensure that the business is market ready. This means getting the right people on the bus, from business advisors or brokers to your accountants, lawyers and investment/wealth managers. Quite often we see business owners who don’t plan ahead enough, with age things slow down, and they take their foot of the gas peddle. This means the business might actual idle downward slowly, and therefore so does its value. Eventually, the owner has his/her “I’ve had enough” moment and lists the business for sale. So often in these circumstances, businesses can lose significant value, potentially losing hundreds of thousands, sometimes millions in value.
Asking for too much or too little for your business.
As business brokers ourselves, we like to think that selling a business is just as much an art as it’s a science. If you were to take your business to three different brokers, you will most likely get three different valuations. So does this mean each one wrong? And like with most things in life, the answer is – it depends. Very often business owners have a number in mind that they need to retire with and expect that their business will sell for that value. This is a bit of a guessing game and can sometimes price the business quite a bit more than its worth. This is when it helps to ask your advisor, what competing businesses in the same or similar industry, and size have sold for, what some of the deal terms where and what to expect from potential buyers. Most advisors know the market well, and take a lot of factors into account.
On the flip side, business owners who are tired or ill and just want to retire, tend to price the business considerably lower than its value hoping to just close a deal quickly, and may not have advisors to help with listing the business. In this scenario, do your homework, talk to your advisory team (Brokers/M&A Advisors, Bankers, Lawyers and Accountants).
Working with the right people to represent your business.
We are quite biased on this topic, but there are lots of merits to working with experienced advisors. Start by talking to your business brokers, accountants and corporate lawyers about your goals, and potentially work on succession and tax planning. In an ideal world your M&A Advisor or business broker is your right hand person who is fighting for you, to get the best deal and the best buyer. This involves lots of work in terms of compiling information, marketing the business, sifting through the buyer pool, and only sending serious buyers your way, lastly helping you evaluate different offers, and taking the deal through due diligence to closing.
So you may be asking yourself, what does a good advisor look like? In the lower mainland, the barriers to entry for Business Brokers are quite low, and typically you want to work with people who have a strong financial background and have either got experience working with business owners, and who understand businesses and/or multiple industries. You also want to work with someone who has some certifications, or relevant work experience, and are business brokers as a full time job. Most importantly, they need to click with you, your goals, and really truly take the time to learn about your business, because it can get tricky to value and sell things you do don’t really understand. On the flip side, not using a broker or the right person, will cost you time and money in the long run. Lastly, take your time, interview a few people, and go with your gut, or warm introductions from your partners, because very often they might have worked with the same people on multiple deals.
In conclusion, putting your business up for sale can be a long and arduous process. We have only listed a few of the pitfalls; there are many more depending on your situation and who you work with. Take your time, interview the lots of people who can represent your business, and plan your exit with your partners – accountants, lawyers, and wealth managers, as all these parties only want to see you get the best possible worth for your business and time.
If you’re interested to connect with one of our M&A Advisors, Click Here and some one from our team will reach out within 24 hours.