5 Common Mistakes Business Sellers Make — and How to Avoid Them

Selling a business is a major decision, and the process can quickly become more complicated than many owners expect.

The good news is that some of the most common problems are avoidable. With the right preparation, realistic expectations and a clear plan, sellers can make the process considerably smoother.

Here are five mistakes we see regularly — and what you can do instead.

1. Confusing an exit date with an exit strategy

Knowing when you want to leave is not the same as having a plan to get there.

It is easy to say, “I want to sell in two or three years.” But if the business is not ready when that date arrives, the timetable may have to move.

A proper exit strategy should consider:

• what the business might be worth;
• what buyers are likely to look for;
• whether the company relies too heavily on you;
• whether financial and legal records are in order; and
• what needs improving before going to market.

How to avoid it

Start preparing well before you intend to sell.

That gives you time to make changes that could improve both the attractiveness and value of the business rather than trying to fix everything once a buyer is already asking questions.

2. Letting your financial records fall behind

Buyers need to understand how the business actually performs.

Historic accounts are important, but serious buyers are also likely to want recent management information so they can see what has happened since the last financial year-end.

If your records are incomplete, inconsistent or several months behind, it can make due diligence harder and may undermine a buyer's confidence.

How to avoid it

Keep your accounts and management information current.

Be ready to explain:

• turnover and profitability;
• unusual or one-off costs;
• recent trading performance;
• customer concentration;
• outstanding liabilities; and
• any significant changes in the business.

Clear financial information helps buyers understand the opportunity and reduces unnecessary uncertainty.

3. Underestimating the sales process

Selling a business involves far more than finding somebody prepared to make an offer.

A serious buyer may want information about customers, employees, contracts, suppliers, property, assets, liabilities and many other areas of the business.

Those requests can feel excessive when you are still trying to run the company day to day, but the buyer is committing significant money and needs to understand what they are buying.

How to avoid it

Prepare key information before it is requested.

A good adviser should also explain what happens at each stage, what buyers are likely to ask and which documents you should have ready.

The better prepared you are, the less disruptive the process tends to be.

4. Taking your eye off the business after accepting an offer

An accepted offer is an important milestone, but it is not a completed sale.

There is still due diligence, negotiation and legal work to complete.

One of the biggest risks during this period is allowing the performance of the business to slip because the owner has mentally moved on.

A deterioration in trading can give a buyer reason to reconsider the deal or renegotiate the terms.

How to avoid it

Keep running the business as though the sale were not happening.

Maintain customer service, monitor cash flow, keep employees focused and avoid unnecessary changes.

Until the transaction completes, the business still needs your attention.

5. Overvaluing the business

Setting an unrealistic asking price can reduce buyer interest before meaningful discussions have even started.

Owners understandably have an emotional connection to the business they have spent years building. A buyer, however, will normally look at sustainable profit, risk, assets, growth opportunities and comparable transactions.

They also need the purchase to make financial sense.

How to avoid it

Start with an evidence-based valuation rather than the amount you would ideally like to receive.

A realistic valuation should consider:

• maintainable earnings;
• recent trading performance;
• sector and location;
• assets and liabilities;
• customer and supplier risk;
• owner dependence; and
• current buyer demand.

The objective is not to undervalue the business. It is to position it at a level that can be supported when buyers begin asking questions.

One more mistake: waiting until you are ready to sell before preparing

Many of these issues have the same solution: start earlier.

You do not need to put the business on the market simply because you start preparing for an eventual sale.

Understanding what your business might be worth today, where buyers may see risk and what could improve its attractiveness gives you more options later.

Thinking about selling your business?

If you are considering selling within the next few years, we can help you understand what your business might be worth, what buyers are currently looking for and what you could do before going to market.

At Intelligent, our valuation is free and confidential, with no obligation to sell.

No jargon. No pressure to sell. Just clear, useful advice.