Selling a Privately Owned Business – Briefing 4 – Common Pitfalls
So, you’re now clear about what you want to achieve from the sale of your business, you’ve carefully considered all your options and you’re about to embark on the actual process. You’ve probably never done this before, so it’s worth keeping in mind some common pitfalls at this point. Below are some of the most common misconceptions about selling your business.
Don’t start unless you are serious. Much time and effort on both sides will go into a sale and it’s unhelpful for the process to be “turned on and off”. A vendor who appears insincere is a serious negative factor for good buyers.
Keep expectations realistic. The value of a business is always subjective, and often as much in the eye of the beholder as in the intrinsic value of the business itself. In some measure all vendors are discounting the future earnings potential from their business into a lump sum now, and aspirations on price must accord with market reality.
Don’t oversell your business. Buyers will generally be experienced, and will be seeking facts, not hyperbole. Information should be factual, substantiable, and preferably conservative. Buyers will seek explanation and verification on all aspects of the business.
Don’t assume you know the ultimate buyers. A common misconception is that buyers will already be known to the vendor. In reality this is rarely so. Competitors and suppliers should be “buyers of the last resort” as for every known buyer, there will be many others as good as or better.
Confidentiality is always important. Whatever the circumstances and however cordial discussions with potential buyers might be, a strong properly signed Confidentiality Undertaking is always essential, if only as a discipline for each buyer, and a disincentive to abuse information received. Pressure to proceed without one should always be avoided.
Prepare quality documentation. A good business differentiates itself from its competition in many ways in normal trading and, when selling, the sale documentation should do the same. That documentation is normally the first information a buyer receives about the business, and a high quality document both in content and presentation will raise the business to the top of the buyers list.
Negotiate well. For a deal to succeed both parties must be happy with the outcome, neither party will be forced into signing an agreement they don’t like. Understanding the buyer’s viewpoint, and dealing properly with any issues or concerns raised, is crucial to a successful outcome.
Be Confident. Small business owners often feel their business will be unattractive because it is too small perhaps or too specialised. This is rarely the case. There are always buyers for all businesses, for whom the business is a vehicle for their own objectives. Buyers will bring skills, resources and capability to the business to take it forward.
Finally, once the deal is agreed ensure that you have a really good sale contract in place. Having come so far, cutting costs on the legal documentation can be a serious false economy.
Selling a business can be a lonely project, where many owners have little or no experience. One way to avoid unnecessary and possibly costly mistakes is to seek specialist professional advice, which, whilst unsurprisingly coming at a cost, is almost always more than fully recouped in a successful, and often more lucrative deal.
25 July 2018