The run-up to selling a business consists of a series of stages, from conducting a company valuation, calculating a sale price, to finessing the best version of your company to attract a suitable buyer. Many business owners work towards unlocking growth potential and pushing profitability to new heights each year, tapping into new markets and establishing innovative ways to generate income. Although the sale preparation checklist varies from business to business, there are key foundations which remain the same. By taking note of the below common pitfalls, you can avoid falling into an arduous cycle and successfully source a buyer for your business.
Consequences of undervaluing and overvaluing
When putting your business on the open market, the price bracket that you place your business into will determine the type of buyers you attract. A cheap price tag is likely to represent an entity with low asset value and limited worth, whereas a higher-end business is likely to have greater asset value, vast growth potential and a strong financial track record to complement the price, attracting a cash-rich buyer. When establishing a price for your business, conduct market research to gauge how much similar businesses are priced at, as if your asking price is inflated, prospective buyers may turn their backs.
By conducting a business valuation or market appraisal, you can calculate how much your business is worth. Ensure that your price represents the worth of your company, steering clear of undervaluing as this could limit your financial returns. Business owners desperate to secure a quick sale can fall into the trap of under-pricing and deterring buyers by representing a scenario which is too good to be true. On the hand, if you are inundated with serious offers, you may have missed out on offers which could maximise value.
A company valuation can help generate an accurate price for your business, taking into consideration company assets, liabilities, cash flow and balance sheet. In addition to your financial performance, prospective buyers may value a brand with an enviable reputation and well-established online presence through the likes of social media, website and reviews. By speaking to a business transfer agent specialising in selling businesses in your sector, they can give you access to knowledge on company benchmarks and average sale offers, helping you strike an accurate and genuine price point which can attract the right kind of buyers.
Why is my business not selling?
If the clock is ticking and your business is failing to gain momentum, is it time to review your strategy? If you have received no expressions of interest, it is wise to act fast before your business ages on the market. A recently added business is likely to garner interest at the outset through the help of instant alerts and notifications to actively searching buyers, whereas an old business may be pushed to the bottom of the pile. If you have overpriced your business, this may be a contributor towards why buyers are scrolling past. Failure to provide enough information on the sale opportunity could also prevent buyers from showing interest as first impressions have a long-lasting impact.
Dangers of taking an open book approach
When advertising your business for sale, take into consideration how exposure to sensitive information will impact employees, suppliers and competitors. It is common for financial reports to only be disclosed to serious, proceedable buyers at a later stage, subject to a confidentiality agreement, rather than making this information readily available. This is to protect the identity of the business and keep sensitive information privy to genuine buyers only. By advertising your business for sale without consideration towards being discreet, you could adversely impact your relationship with suppliers, leading to employees to expect employment uncertainty. In addition to causing parties instrumental to your supply chain and business operations to feel disgruntled, you could jeopardise the standing of your company before securing a new owner.
Omitting the business preparation stage
If your business has a poor track record with company finances, the period between planning the sale of your company and putting it on the market should be packed with tightening company finances, minimising expenditure and straightening out the balance sheet. Failure to prepare your business for sale by collating the relevant information, settling outstanding debts and maximising profits could result in extinguishing the likelihood of a competitive sale.
If you are considering selling your business, it is vital to prepare your company for the sale process by presenting it in the best image possible. Communicating transparently with buyers can help drive genuine passion for the business opportunity and attract competitive offers. Speak to a member of the Selling My Business team for guidance throughout the sale process, regardless of whether you are planning for a future or imminent sale.
Meta: Common pitfalls when selling a business include overvaluing, undervaluing, poor record-keeping, failure to prepare your business for sale and much more...