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Recent
industry analysis suggests that on average only one in five businesses
put up for sale actually completes in a successful transfer.
In reality
the percentage is probably a lot lower.
Easily 80%+ of the businesses we see come to market via brokers, accountants
and vendors, simply will not sell. Imagine potential buyers looking through
your marketing advertisements and dismissing them immediately due to
some basic fatal flaws.
To help you think about getting it right from the start,
here is a list of the ten most common mistakes we see sellers making:
1. No Preparation
Unbelievably, many businesses come to the market without
a single idea of a) what is involved in the sales process and b) what
they want to get out of the sale.
It is vital that you understand this
and have a firm plan of what you would like to achieve. If you are
poorly prepared, it will show, frustrate buyers and waste everybody’s time. End result: NO SALE. Send me an e-mail if you would like to discuss what is involved in planning for a sale and to find how what you need to do and how it can significantly increase the amount of money you ultimately receive.
DO NOT underestimate the amount of time and effort
it will take to get the right result.
2. Wrong Price
This is the absolutely, without doubt, the main reason
businesses don't sell. See for yourself; look at the business for sale
listings in the FT or Sunday Times. If your price is too high, buyers
don't take you seriously and won't bother to investigate further. End
result: NO INTEREST and NO SALE.
Most sellers don't know the value
of their business. Ask a broker, get a valuation. We all want to
get the best value from our assets.
Ultimately a business is worth
whatever a willing buyer will pay a willing seller - this only ever
becomes apparent when you are on the market. Having a firm idea of
what you would like to achieve is ideal but keep it reasonable. Wanting
a £1,000,000 because it sounds a nice round number won’t get you very far if you business isn’t worth it.
3. Inadequate Financial Records & Information
Most private businesses are set up
to minimize tax, not show maximum profits. Accountants and business
advisors use profit as one of the yardsticks of valuation. Low Profits =
Low Valuation.
Keep accurate records of the true profitability of your business. If
there is a good reason for low profitability and you can demonstrate
solid results make sure you document this.
Nothing kills a deal quicker
than not being able to produce accurate, up to date, financial
information or failing to answer any queries quickly and efficiently.
4. Do You Really Want To Sell
Give some serious thought as to why you want to sell.
Common reasons include retirement, health, capitalisation or a career
change. This will be one of the first questions a buyer asks you. If
the buyer isn’t comfortable with your reason they will simply walk away. If you have not made a firm decision to sell, whatever your motivation - don't. Wait until you’re sure it’s what you want to do and have a firm idea of what you want to achieve.
5. Non-Qualified Prospects
Beware the tyre kickers, bargain hunters and general
time wasters. Don't be afraid to ask for financial information or do
background, credit and company checks. A serious buyer won’t mind. Make sure the buyer has the means and motivation to make a purchase. Use a quality business broker who will be able to check this thoroughly for you as part of their service.
Be WARNED, you can waste huge amounts of time and
money getting distracted by the wrong prospects.
6. The Right Buyer
Usually the best deals arise when a buyer has a real
motivation to buy such as: gaining skilled staff, a proprietary product,
a new geographic location/sales territory or lucrative contracts. These
kinds of buyers are known as “strategic buyers” and they are driven by more than just profitability which usually means they can offer better value for the business.
7. Demanding An All Cash Deal
It's not about all cash, it's about getting paid. Buyers
are naturally suspicious of sellers who demand total cash settlement.
What is being hidden? How much faith does the Vendor have in his business?
Buyers may pay a substantial premium for an element of seller finance.
Keep an open mind and you might get a better deal.
Your business has
to pay for itself or the buyer won't pay.
8. Trying To Sell Yourself
Selling a business is a complex and time consuming
process. It is very easy to underestimate the process and think you
can do it all. You wouldn’t be the first or last to take your eye
off the ball while trying to sell, letting your business slide -
weakening your sales proposition. You can even make your business
un-saleable. Don’t make this mistake and live to regret it.
A buyer will automatically assume a position of advantage
if they see you have chosen not to take professional help, especially
if they equip themselves with an army of experts - Beware. Using
a broker means that you will benefit from an experienced professional
who understands what it takes to make a deal happen – controlling
the process from start to completion.
One of the best reasons
to use a broker is to act as a buffer between you and the purchaser.
There will certainly times when you’ll want to adopt a tough negotiating position
- a broker makes this possible without antagonising the buyer.
Remember,
you might have to work with a new owner during a handover.
9. Over Negotiating
Negotiate hard, but not to the last penny. Many a deal
has turned sour because one side feels cheated or abused.
Remember
you might have to work with the new owner for a period post sale… A
skilful negotiator will work toward everyone felling happy with the outcome.
10. Timing
The best time to sell your business is when you don't
have to. Sell when your turnover and profits are at, or near, their
best. It can be hard to justify a great price and do a deal when your
turnover and profitability are in decline.
Plan your sale in advance
make sure all the right elements are in place especially tax advise.
Being well prepared can really make the world of difference in
terms of the money going into your pocket.
There is also a definite timescale to closing a deal.
Buyers can quickly go off the boil and move on if they feel they
are not making progress or not efficiently getting accurate information.
Using a broker should negate this problem.
There are many more, however, this should be enough to
get you started. Please contact me if you would like to discuss any
of the issues raised.
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