When you’re ready to sell your business, it’s essential to make sure you avoid common mistakes. It’s important to note that these mistakes are as much about psychology as methodology. Most of these mistakes happen when business owners don’t have a clear plan for how they want to sell their business. I’ve seen business owners wake up one day and say they want out, whereas others have gone through the detailed process years in advance. By avoiding these eight most common mistakes, you’ll be able to get the best price for your business, feel good about the process and prevent any headaches along the way.
What’s the Owner Going to do Next?
You have been purposeful for many years in starting and growing your business. This business has been something you’ve loved and likely despised at times. As much as you had a plan in your company’s creation, it’s equally crucial for you to have a plan after your company’s sale. It may not need to be as elaborate as your business plan, but it’s got to be something compelling and inspiring. Whether travelling the world, starting a charity, or building a family compound, it will need to keep you motivated post-business ownership.
Is Your Business Successful but Not Saleable?
Imagine you’ve worked for years to build a successful business. You’ve poured your heart and soul into it, and it’s finally starting to pay off. But then, one day, you get a call from a potential buyer interested in acquiring your business. Suddenly, your hard work feels like it could be for nothing. After all, without you at the helm, is your business worth anything?
The truth is, if you want to transition your business to new ownership, you need to make sure that it’s not just successful but saleable. That means creating systems and procedures that someone else can easily follow and training your employees to be self-sufficient. It might take some extra work upfront, but in the long run, it will make your business much more valuable – and much easier to sell.
Have You Prepared Your Staff for your Company’s Sales?
You’ve worked hard for years to build your business to the point where it’s ready to be sold. But have you taken the time to prepare your staff for your company’s sale? Once the deal is finalized, you’ll be taking a step back from the day-to-day running of the business. That means someone else will need to take over your responsibilities. Do your employees have the skills and knowledge to keep the business running without you? If not, now is the time to start training them. Investing in your staff will pay off in the long run, ensuring your business continues to thrive even after you’re no longer at the helm. It will also help you yield a much better return on the sale price.
Have You Chosen Your Advisory Transition Team?
When selling your business, it’s crucial to have a team of advisors who can help you through the process. Many choose to work with a facilitator, investment banker, Mergers and Acquisitions firm or business broker to handle the sale. However, several other professionals can be helpful, such as accountants, lawyers, commercial real estate agents, wealth managers, tax specialists, estate planners, and insurance advisors. The key is choosing a team you feel comfortable with and with whom you feel confident you can get the job done.
One way to choose your advisory transition team is to ask for recommendations from friends or colleagues who have recently sold a business. These experts need to have extensive experience in the selling of businesses.
Whatever method you use to choose your advisory transition team, the most important thing is to ensure you are comfortable with them and that you feel they have the experience and expertise to help you successfully sell your business.
What are you Obligated to Pay Employees and Investors?
When selling your business, you likely have many people to consider – employees, investors, and yourself. While you may be looking forward to the next chapter, it’s important to remember that financial obligations are associated with selling a business. Employees may be entitled to severance pay or ongoing support, and investors expect to see a return on their investment. As the owner, you must also be prepared to pay taxes on any profits. With so many things to consider, it’s vital to seek professional help when selling your business. An accountant or lawyer can advise you on what to do to meet your obligations and close the deal. By taking the time to understand the financial implications of selling your business, you can ensure a smooth transition for everyone involved.
What is the Buyer’s True Intention for your Business?
When you sell your business, it’s essential to understand the buyer’s true intention. Will they strip it and sell it? Will they take the company to the next level? Or will your employees be displaced?
It would be best to ask yourself these questions before you sell because the answer will determine how much you’re willing to sell for. If the buyer wants to strip and flip the business, then you’re not going to get top dollar. But if they’re planning on taking the company to the next level, you can expect a good price.
The bottom line is that you need to know the buyer’s intention before you sell. Otherwise, you could sell for way less than your business is worth.
You’re Not Supposed to be an Expert in Selling Your Business
Selling your business is a big decision; most people are not experts in this area. The best thing you can do is surround yourself with experts. Selling your business requires advisors with experience and knowledge to help you through the process and get you to the finish line. They will work with you to understand your goals and objectives and create a plan that meets your needs. You will be able to address topics like employment law, valuations, tax minimization, estate planning, creating a legacy, philanthropy, real estate, financial management and a host of other areas. In addition, they will negotiate on your behalf, helping to get the best possible price for your business. With their help, selling your business will be a much smoother and less stressful process.
How Much Time Should I Give Myself to Sell My Business?
When selling your business, giving yourself plenty of time is important. It’s a mistake to think that you can just put your business on the market, and it will sell quickly. In reality, selling a business takes time, effort, and patience. There are many moving parts, and you need to ensure everything is in order before you start thinking about selling. Also, many tax minimization strategies take time to develop if you want to minimize your taxes. It would be best if you gave yourself enough time to implement these strategies and see results. So, how much time should you give yourself? It depends on your situation, but a good rule of thumb is to give yourself at least 3-5 years to prepare for the sale of your business. This will provide you with the time you need to get your ducks in a row and maximize your chances of getting the best possible price for your business.
I reached out to a few of my friends who have successfully sold their businesses and asked them what the most costly mistake they had heard about was when attempting to sell a business. Without fail, each mentioned that not retaining the experts you need during the transaction can be very costly. They also emphasized the importance of allowing enough time for due diligence and preparing your staff (and the company) to run without you. If you’re considering selling your business in the next ten years, make sure to heed this advice so that you don’t end up giving away a hefty portion to the CRA.
Have you gone through this process yourself? What tips would you add?