Selling a business comes with its share of challenges and concerns. Many business owners do not realize just how much time and energy is required to facilitate the sale of a company and are blindsided when they embark on the M&A process. The good news is that many of the pitfalls around selling can be avoided by learning from others' mistakes, like the 10 outlined below.
1. Lack of Preparation
This is a big one. If you are going to put your business on the market, you need to do the proper preparation. That includes compiling and organizing your financial documentation, maintaining the profitability of the business, addressing any leasing issues or staffing problems, and any other concerns that could impact salability and value. And it's never too soon to get your business in shape for a sale. The smartest business owners always have their business in sale-ready condition because they understand that it takes time to get fully ready, it can make it more valuable to buyers because it demonstrates that you have your act together, and you won't miss out on a once-in-a-lifetime opportunity because you weren't ready.
2. Unreasonable Expectations
A textbook mistake made by inexperienced sellers is to have inflated expectations regarding the true market value of the company. A lot of owners can be headstrong about their businesses and tend to think the sale price is higher than it should be. But you need to be realistic. Price can be determined by current market conditions, how long a business remains on the market, as well as many other factors that make the valuation process complex. One shouldn't just assume that they know the value arbitrarily. If you take the time to conduct a thorough company valuation, you can arrive at a more accurate asking price, making it more likely that you can enjoy a smoother sale, and buyers won't laugh you out of the room.
3. Breaking Confidentiality
Never underestimate the importance of confidentiality. If your customers and your staff find out that you are looking to sell the company, it could have a negative impact on sales and the ability to retain key talent. It is a delicate balance between marketing your business and maintaining confidentiality, but having an M&A professional in your corner can help you properly manage this—something that is way more difficult to do on your own.
4. Not Pre-Qualifying Buyers
To arrive at a successful sale of your company, it is important that you pre-qualify prospective buyers. Pre-qualifying documents such as confidentiality agreements are essential when showing prospective buyers critical information about your company. Many sellers think they shouldn't qualify prospects too early on, thinking they could scare them off. But that typically is not the case. Pre-qualification can actually draw prospects in further. It also prevents sensitive information about your company from ending up in the wrong hands, and weeds out buyers that are not serious.
5. Misrepresenting Your Business
Of course, you always want to portray your company in the best light, but you need to do this accurately. Never exaggerate numbers, skew projections, or try to hide problems, no matter how tempted you may be to do so. This is a sure-fire way to turn off buyers. The truth will eventually come to light, and not only will it make you look bad, but it can also be the basis for legal action.
6. Being Overconfident
Confidence regarding the sale of your company is fine—unless it goes too far, causing you to overlook issues you can easily address or be out of touch with reality. Far too often, sellers embark on the sales process believing that they deserve top dollar for no other reason other than just believe that it's worth that much. Valuation is based on quantifiable criteria, and it's not a simple process. This is why you need to speak with a seasoned professional to understand common practices. By doing this early on, you will be in a better position to address any issues that can impact the value of the company. It will also help you manage your expectations for a sale so that you do not come off as delusional to prospective buyers.
7. Transition Ignorance
You do not want to become so wrapped up in selling your business that you overlook the important transition process that will need to follow the sale. Some buyers may want you to stay on for a few months to help with the transition, and others may prefer a clean break. Either way, you need to communicate with the buyer regarding these expectations so that both parties can come to an agreement that ensures that everyone is prepared for what is to come after the sale is complete. You also should plan enough in advance to leave time for a transition period, so you do not have to exit later than desired.
8. Seeking All-Cash Offers
In today's marketplace, all-cash sales are simply unrealistic and can present tax issues. Buyers tend to prefer concessions in the form of seller financing, deferred payments, or third party financing. As a seller, you may be able to avoid higher tax brackets if you spread sales receipts over several years.
9. Lack of Professional Help
So many business owners think that they can sell their companies on their own without any professional representation. They think they are saving money by cutting out a middleman. But in reality, M&A advisory professionals actually ADD value to a sale, and can help you get the maximum sale price possible. There are also other advantages in addition to a higher valuation, such as the handling of due diligence, accessing quality buyers, marketing efforts, and negotiation tactics. Having an M&A expert deal with these important matters also allows you to remain focused on running your business.
10. Being Too Hands-Off
Just because you've enlisted an M&A professional, it doesn't mean that you can totally check out. Sure, they're going to be doing the heavy lifting, but you will need to be engaged in the process. After all, you are an expert on your business. Also, once buyers have been identified, you will need to be present to boost their confidence and show that you are serious about the sale. The quality of this interaction can have a big impact on whether or not your company ultimately sells, and for how much.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkIntl.com
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Lawrie@BenchmarkIntl.com
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkIntl.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $7B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 14 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.