Common Mistakes Business Owners Make When Selling Their Business

Selling a business could be relatively simple if… you have a buyer lined up, all your papers are in order, your business has been properly evaluated, and you know how to navigate negotiations and tax and do all this while continuing to run your business and retain key staff. Doesn’t sound so simple anymore now, does it? 

With all that goes on behind the scenes of a business sale, mistakes are easy to make, but we’ve compiled a list of the most common ones so that you can hopefully avoid them and have a successful sale. 

1. Underestimating how long the business could take to sell

A business sale doesn’t typically happen overnight because if it did everyone would be in on it. In Australia, the sale of a business can take anywhere from two months to two years,  depending on several factors like location, industry, and the overall size of the company. A common mistake business owners make when trying to sell their business is underestimating how long it will take to sell. 

It’s common for business owners to perceive their business as more valuable or sought after than it is. This leads them to believe their business will be on the market for a month or two and then snatched up by a shark. Even if your business is in demand and a great deal, you still might not sell it immediately. 

2. Neglecting to prepare financial records

As soon as you’re considering selling your business, getting your financial documents together should be one of the first tasks on your priority list. When you take your business to market, potential investors will want to thoroughly go through your financial statements to see if the monetary value of your business backs what you claim. Making potential buyers wait for your statements can act as a deterrent if they assume you’re unorganised. Here are some of the documents you will need to organise:

• Statements

• Balance sheets

• Accounts bother payable and receivable reports

• Tax returns

• EBIDTA

• Any other relevant financial information

3. Not negotiating

A large part of selling a business is the negotiations. When you receive a letter of intent to buy your business, you’ll likely get an offer with it. At this stage, you can negotiate with the potential buyer, where you discuss the price of your business and its assets. A common mistake business owners make here is dropping their prices too fast and not negotiating to get as close to their market value as possible. You are at liberty to reject an offer if it is too low or approach them with another figure. If you feel like negotiating isn’t a strong point, consider hiring a corporate advisor to negotiate on your behalf. They might not have as much personal investment in the business and can negotiate more professionally. 

4. Overpricing the business

It’s common for business owners to put a price tag on their business that far exceeds its market value. We can understand why this happens. In many cases, business owners pour much of their time, money, and energy into building a business. Because of that investment, they process their own valuation of the business through those lenses. Unfortunately, when a business is clearly overpriced it chases potential buyers away. 

On the other hand, we also want to caution business owners against pricing their business too low to sell it faster. Lower prices can also be a red flag for potential buyers. Rather, price your business competitively with others in the industry. 

5. Not factoring in tax

We often see businesses making costly mistakes when it comes to taxes. When you sell or purchase a business, there are tax implications for either side. To ensure that you navigate this part of the sale of your business, try to consult a corporate advisor. They’ll help you remain compliant with any tax obligations you have. 

6. Not timing the sale of the business properly.

Timing matters when you’re trying to sell a business. For example, the percentage of investors who would be willing or able to buy a business during a recession isn’t high. However, when markets are flourishing, particularly in your industry, you might find it very easy to sell your business for a better price. 

7. Not preparing staff for the change of ownership

Another important part of a business sale that we find business owners don’t pay enough attention to is preparing their staff for the transition of ownership. The sale of a business can put staff on edge. Many of them fear change because it may be unknown for them. They don’t know if they will keep their jobs or how the business will change. Because of this, employee retention issues could occur, which could negatively impact the sale of the business. 

To avoid these issues, try to participate in the transition process, Be there to introduce the new owner, and ensure employees that nothing is going to change. Even if you stay on for a month or two so that the hand over goes smoothly. 

8. Neglecting to hire a professional

Finally, we see business owners trying to manage their businesses and the sale of it at the same time. While this isn’t impossible, it can be challenging and potentially risk costly mistakes happening. Hiring a corporate advisor may cost, but the benefits justify it. For instance, they’ll manage the paperwork, provide you with a sales strategy, assist you in improving your business to enhance its valuation and negotiate with potential investors on your behalf. This allows you to focus on running and improving your business as you prepare it for the sale. 

Should you hire a corporate advisor?

A corporate advisor can help you navigate the specifics of a sale, ensuring that you can avoid making small, costly mistakes as you attempt to sell your business. If you’re looking for an advisor, Lloyds Corporate Advisors in Melbourne specialise in assisting businesses with exit strategies and sales and calculating the EBITDA. They will ensure everything is done right without room for errors.

Final Thoughts

Whether you’re selling your business to move onto something new or you just felt that it was time to hang up the cowl, hiring a corporate advisor is the best way to ensure the sale runs smoothly and that you avoid any costly mistakes. Likewise, they will also increase your chances of getting a higher price for your business.