4 Mistakes to Avoid When Selling Your Business

Proven insights from the field.

If you are like most small business owners in BC you no longer expect the exit from your company to be easy. However, many are surprised by the hard reality that in today’s market it may take longer and require more effort than in the past. That being said don’t get frustrated as I am here to share some insights from the field that you can use today to get your business ready to sell. Taking these steps will help benefit you in maximizing the eventual sale of your company.

Many of the frustrations and challenges posed to sellers in today’s market can be summarized in the lack of quality information about potential pitfalls and what can appear down this path.

In this article we are going to explore 4 of the areas that I feel have the most significant impact on both your business sale and your peace of mind.

  1. Insufficient Preparation

    The old saying holds true here. If you fail to plan then you plan to fail. Lack of preparation is by far the most common mistake that small-business owners make. Just as you would make sure you are well dressed or cleaned up before a first date it is just as important to get your business in proper order before inviting people to look around.

    In a business context this includes ensuring that you have the proper Financial documentation, that you can show sustainable profitability, you have researched and investigated any potential issues with the lease, and that you have a plan in as it relates to potential staffing problems If you do not address these issues not only can they impact the salability of your business, it can also affect the price your business will command in the marketplace. If you are thinking about selling your business in a few years time when would now be a good time to get your business affairs in order.

  2. Overconfidence

    I have a tremendous amount of respect for small business owners in this province and believe that years of hard work, late nights, personal and financial risk are all to be celebrated and applauded. Being proud, confident and sure that your business is worth top dollar in the market is fine however, can you substantiate this to a well versed and knowledgable buyer who is hungry for a deal and doesn’t have the same easy access to funds as they once did.

    Today more than ever, it is critical to stay focused on those activities that will help you make the sale of your company a reality. Far too many sellers go into the selling process with the confidence that they will get top dollar for their business simply because they have a gut feeling of what it’s worth. The real world is slightly different. Buyers and most professionals work on valuing a business through quantifiable criteria and data, not the owner’s personal estimation of worth.

    To avoid this mistake, get an objective third-party valuation that looks at among other things your earnings, market and competitive analysis and investigates potential growth areas in your industry as metrics of your value today. When you have identified what the market is willing to pay for your business you can focus on specific activities identified in the valuation that can lead to a real increase in the value of your company.

  3. Pricing Problems

    One needs only to look at what is for sale on the market to know that there are inexperienced sellers, and their advisors, who are listing business based purely on what they they think it is worth. You can usually spot this from a mile away because of the price (hint: it is usually on the high side). Price and terms are the two biggest challenges that sellers face when putting their business on the market. If you take the time to conduct a thoughtful valuation with a purpose specific professional before assigning an asking price to the business you will be in a better position to defend that price and to reap the benefit of a faster, smoother and more profitable sale.

  4. Failure to Pre-Qualify Buyers

    Maybe it is just me yet I feel there is a new pass-time in the city for buyers called “kicking the tires”. This is typically done at night, when in front of a computer, and is triggered when a new business listing is put on the market. The next morning the seller or representative gets a flood of request of people wanting to know everything about the business. Added to this there is a catch. The buyer will not want to share a single piece of information with you about their ability to actually purchase the business.

    Pre-qualifying prospective buyers is essential for the successful sale of your business. In most cases business sellers want to avoid qualifying prospects too soon for fear that will scare the prospects away. In fact, more often than not pre-qualification draws prospects deeper into the sale of your company. Early pre-qualification is there to protect you and the sensitive information that relates to your company. This step will help mitigate your confidential information from falling into the wrong hands and ensures that only serious buyers have access to key details of the sale. Pre-qualification documents like confidentiality agreements and financial background information are standard requirements for prospective buyers interested in seeing critical information about your business.