A leading law firm is warning entrepreneurs looking to sell their business not to underestimate how treacherous the process can be.
Mace & Jones corporate lawyer Ian Hodgkinson highlights some of the common pitfalls the unwary can fall into.
“Business owners need to take real care to prevent the selling adventure from becoming an unmitigated disaster. Poor preparation can lead to an enormous waste of time, effort, energy and money.
“The first common mistake is underestimating the graft that is involved. It is critical to prepare the business effectively. Trying to sell a business without the accounts, premises and staffing structure properly organised creates the worst impression.
“Furthermore going it alone without the proper professional advice can lead to fundamentally flawed decision making at crucial points in the selling process. Moreover not having the proper support gives the buyer an advantage when thrashing out the deal.”
Mr Hodgkinson said with so much at stake with the selling of a business, sellers had to be realistic.
“Misjudging the market or failing to realistically see the business for what it is can lead to overpricing,’ he said. “In a stroke an overpriced business can eliminate all serious and shrewd interest leading to time wasting with buyers who are inexperienced or not really interested.”
Top tips for selling a business
1. Make sure that your financial documents are up-to-date and as accurate as possible. Even if your business accounts reflect poor figures, buyers are often attracted to potential and therefore may see your business as the perfect acquisition.
2. Be prepared to finance the deal yourself. Many buyers today rely on the seller to help them buy business. A failure to agree to this may reduce the number of interested parties, particularly if the owner is looking to sell to the incumbent management team.
3. Do not attempt to sell the business yourself. Buyers automatically have an advantage when they see that a seller is willing to go through the process alone, particularly if they hire an army of professionals.
4. Value your business with the help of a professional before you start to sell it – if you start negotiations with potential buyers at the wrong level it will be almost impossible to drive the price up once your advisers tell you it is worth more than you have said you will take.
Make sure you read ByteStart’s ever-popular guide; What’s my business worth? How to value a small business before you do anything.
5. Do not go into the selling process if you have outstanding problems in the business. Your business should have tied up any issues before you begin, but make sure they are tied and not pending.
6. Keep the sale of your business quiet to prevent issues arising such as negative attitudes from employees, customers and suppliers.
7. Sell your business at the best time. If your business is currently under-performing, try to wait until it is showing promising results.
Just as larger firms are unlikely to float on the stock market during a recession, small companies should wait until the general economic climate is good to maximise the returns they can expect to make.
8. Perhaps the most important tip of all is to ensure that you are realistic about your price expectations.
Small business owners often value their businesses at inflated prices due to the time and effort they have spent on them. Read up on common valuation techniques, and industry conventions which may exist.