The 10 Most Common Seller Mistakes
By Jon Georgiades
Recent industry analysis suggests that on average only one in five businesses put up for sale actually completes a successful transfer. In reality the percentage is probably a lot lower.
Easily 80 per cent 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:
Unbelievably, many businesses come to the market without a single idea of what is involved in the sales process and what they want to get out of the sale. It is vital that you understand these aspects and have a firm plan for what you would like to achieve. If you are poorly prepared, it will show, frustrate buyers and waste everybody’s time. The end result is NO SALE. Send us an e-mail if you would like to discuss what is involved in planning for a sale and discover 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 a positive result.
This is without doubt the main reason businesses don’t sell. See for yourself. Look at the business for sale listings in the Sunday Times or Financial Times. If your price is too high, buyers don’t take you seriously and won’t bother to investigate further. Where there is no INTEREST, there is NO SALE. Most sellers don’t know the value of their business. Ask a reputable Business Transfer Agent to give you a professional 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 million pounds because it sounds a nice round number won’t get you very far if you business isn’t worth it.
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 queries quickly and efficiently..
Do you really want to sell?
Give some serious thought 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.
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.
The right buyer
Usually the best deals arise when a buyer has a real motivation to buy – such as: when they will be 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.
Demanding an all cash deal
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.
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 – and weakening your sales proposition. You can even make your business unsaleable. 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. Click here to connect to one of our recommended business strategist.
Not convinced? One of the best reasons to use a broker is to act as a buffer between you and the purchaser. There will be 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.
Many a deal has turned sour because one side feels cheated or abused. You may have to work with the new owner for a period post sale… A skilful negotiator will work toward everyone felling happy with the outcome.
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 advice. 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 getting accurate information efficiently. Using a broker should avoid this problem.
There are many more, however, this should be enough to get you started.
Please contact us if you would like to discuss any of the issues raised.