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Watch Out for the 7 Deadly Sins When Selling a Business
If a sale is achieved it will inevitably be at a significant discount.
THE NUMBERS FOUND TO BE WANTING
At the outset, the prospective buyers will have no emotional attachment to the business whatsoever.
They want to be assured that they have left no stone unturned in their efforts to get to grips with the business, that they feel the numbers are solid, and the price realistic. If the seller presents financials which clearly do not justify the price being asked, or are found to be incorrect then the buyers will quickly move away.
If there are too many unanswered questions, doubts will grow in the buyers’ minds and they will start discounting the apparent performance to take account of the ‘grey’ areas.
TOO HIGH EXPECTATIONS
A business owner who has built up their business over many years, and has put an enormous effort in doing so, sometimes at great personal cost is always going to be reluctant to settle on a price which they feel really doesn’t do justice to this very significant ‘personal investment’.
Sellers can also have too high expectations in a number of other areas of the sale – the time it will probably take to achieve a sale, the conditions (including restraints of trade) that the buyers will want to incorporate in the Sale and Purchase Agreement, and the basis on which the purchase price will be paid.
LACK OF COHESION
Communication, as they say is the name of the game. In the sale process, tight management of the channels of communication to members of staff, senior executives and the prospective buyer(s) concerned, is absolutely critical.
If a prospective buyer is ‘let loose’ on staff, or can simply meet with the seller or sellers without involvement of the company’s adviser, then concessions may be made inappropriately, highly confidential information released, staff could become demoralised, and the entire sale transaction jeopardised.
INADEQUATE TRANSFER OF SKILLS AND EXPERIENCE
Trying to sell a business when it is clear to all and sundry that the owner is the business is never going to work. Some business owners insist that they are great delegators, but if the key decision making for example is tightly held onto by the owner, any prospective buyer will immediately realise that there is a problem.
NEGLECTING YOUR BUSINESS WHILE THE SALE IS UNDERWAY
This is a trap that too many business owners fall into. Owners generally underestimate the time it takes to find the buyer, to secure that buyer through a negotiated Sale and Purchase Agreement, and then to allow the buyer the time to conduct the due diligence – all ultimately leading to an unconditional sale.
Before that final point – an unconditional sale, a buyer can walk away at any time. If the business owner neglects the business because he or she starts to get completely wrapped up in the sale, then the business itself will suffer. Sales could decline, gross profit margins reduce, and/or valuable clients lost to competitors.
The buyer could get very nervous and potentially walk away, or negotiate a compensating reduction in the sale price.
TRYING TO DO IT ON YOUR OWN
As mentioned in our opening statement, selling your own business requires careful planning and meticulous execution. Emotions run high, and stress levels rise.
A successful outcome could lead to a secure retirement giving you the opportunity to tick off that bucket list at leisure, an unsatisfactory outcome could see you having to scrimp and save through your declining years.
These outcomes are quite difficult to have in the back of your mind when you are trying to nail down a complex transaction.
Use the experts, it really will be worthwhile.
Article written by Mike Redman - Business Broker at LINK Wellington