A significant proportion of businesses that go on the market never result in a successful sale. While there are a number of external factors that can influence the outcome of a sale, the most crucial elements are typically those that an owner can control and even use to their advantage.
Instead of actively addressing potential issues most owners continue to make costly mistakes which often lead to an unsuccessful sale of the business. The most common errors involve a lack of planning and sales preparation, making uninformed decisions and having unreasonable expectations. Below we explore 3 prominent mistakes that often result in an unsuccessful sale of a business.
Lack of preparation and not understanding the selling process
When a business owner decides to sell their business, you’d assume that they would hire a professional business broker to help them navigate the intricacies of the sales process, but more often than not owners make the mistake of assuming they can tackle this challenge single-handedly without acknowledging or understanding the gravity of the task and preparation required to reach a successful sale. Those sellers who get the best deals are the who make time to prepare properly for the sale of their business.
Several business owners have missed their window of opportunity due to a lack of adequate preparation which can include ensuring that business records are kept updated, comprehensive business history and sales portfolio are available, and confidentiality agreements are in place, just to name a few.
Neglecting due diligence
Due diligence is a useful tool for sellers since it makes it possible for them to target key areas for improvement and other areas of potential which could boost the valuation of their businesses and prevent buyers from pulling out of deals, resulting in a lot of lost time and money.
The due diligence reports cover such fundamentals as the up-to-date financial profile of the company, its growth prospects, and offers a realistic basis for a fair valuation, the process also addresses legal, tax or other regulatory requirements needed for a successful business sale. Since the majority of buyers assess a business on the basis of historical data, a thorough due diligence process ensures that sellers can present a strong case to help buyers recognise the potential for a greater return on investment.
Absence of a proper valuation strategy
Accurate valuation of your business requires a carefully mapped out strategy. Buyers need to understand the reasoning behind the price tag on your business and demand to see the evidence for the basis of your valuation. Knowing how you have arrived at a selling price for your business is crucial in negotiating a successful sale and getting the best price.
There are a variety of pricing strategies but a common one is based on the turnover and gross profit generated by the business. When equipped with an effective valuation strategy, business owners can effectively highlight growth channels, competitive advantage and the business’s unique selling points. In many instances, owners unrealistically overvalue or undervalue their businesses but with the help of an experienced business broker, owners can save money, time and secure a successful sale in good time.
To avoid making similar mistakes, it is advisable to bring on board a reputable and reliable broker who can potentially help the seller qualify buyers and increase their buyer reach, assist in negotiations or deal structuring, and provide an accurate market valuation for their business. Selling a business is a once-in-a-lifetime opportunity and probably the largest financial transaction of an entrepreneurs life so the need for preparation, due diligence and proper valuation cannot be understated.
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