Your business is likely one of your largest assets, so it’s crucial to ensure it’s valued at the right price when you sell it. There are many mistakes you can make when selling a business that can devalue it. You want to ensure you get a good value for your business. Follow these guidelines to avoid these mistakes.
Plan the sale:
Ideally, you should start planning a sale three years before your target date, but if it’s too late, you’ll need at least a year. There are many things to plan to prepare the business, from ensuring your accounting is in order to renovating. You need to consider how you plan for the transition, whether you offer training, what assets you’re selling, and whether you’re selling the business as a whole. All of these things and more take time. Professional help can allow you to create a comprehensive sale preparation plan and is important at this stage if you want to get a good price for your business.
Put the business on the market:
It’s tempting, when someone recommends a buyer or expresses interest in purchasing your business, to simply pursue that opportunity. However, when you only offer the option to one buyer, you’re unlikely to get the price the business is worth. Make sure you get your business’s sale announcement out to a large group of potential buyers.
Tell it like it is – warts and all:
It’s crucial to be honest about your business, even if something negative is present. Once a buyer is interested and ready to do business, they’ll want to investigate the business further and conduct due diligence. If they find anything hidden, it raises concerns that there could be other issues with the business. At this point, the buyer will usually lower the price they’re willing to pay, and more often than not, the deal will fall through. Therefore, it’s important to be upfront about anything that might seem negative and address it head-on so it can be managed well from the outset.
Stay focused:
During negotiations to sell your business, it’s easy to lose focus on running the business. If this, in turn, leads to a decline in the deal, it will also lead to a drop in the price someone is willing to pay. You may need to renegotiate a previously agreed-upon price, increasing stress. It’s definitely advisable to turn to someone who practices M&A, so they can handle all the details, relieving stress and allowing you to continue managing your business effectively until the end.
Diversify your customer base:
Taking over a business with only a small customer base is risky. It’s likely that some customers will churn after the sale. Acquirers know this and will want to have a broad customer base to minimize this likelihood. No more than 10% of revenue or profit should come from a single customer. If you can’t expand the customer base, make sure you have long-term contracts that assure the buyer that the customers are there to stay.
Develop your team:
A buyer will look for a business that can continue to operate well and grow after they purchase it. It will be of great benefit to them if the staff is well-trained and competent in managing the business, thus adding value to their business. Staff training, specifically in management roles, should begin at least a year before putting your business up for sale. No one will want to buy a business that relies solely on the seller’s skills to succeed.
Make sure your accounting is good:
Good accounting says a lot about a company’s management and inspires confidence. It also aids in due diligence and the negotiation process by providing an accurate account of the business and its financial history.
- Have complete and strong contracts:Make sure all your contracts are watertight and up-to-date. A buyer won’t want an agreement that could mean rent increases, or even that suppliers could withdraw without notice. Make sure you protect your intellectual property and have good insurance. You’ll then get a good value for your business for sale.
Keep it confidential:
When customers or employees learn of a potential sale, they may leave due to the uncertainty it creates. Competitors can also use this to their advantage. If you’re worried about a key employee, offer incentives to encourage them to stay. But be aware of the cost to the company in this case.
Strong team to do business:
Many acquirers have experience in purchasing a company. And they have a strong, dedicated team of professional consultants and lawyers to close deals. It’s crucial to have a team that matches this professionalism to achieve a successful deal. M&A consultants can be the solution for navigating difficult negotiations and ensuring a fair and efficient agreement.
In short
To sell a business for the best price, there are several things to consider. Planning should begin early, up to three years before listing, not only to define the details of the transition but also to ensure the business operates at its optimal potential. Train the team in management and ensure proper and complete documentation. It’s important to market the business well to a range of potential buyers and be clear about all aspects of the business. A good team is also crucial for negotiations. This is how you can get a good value for your business for sale.
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