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What are the most common mistakes business owners make when selling their businesses?

Whether you’re looking to cash in on your hard-earned success or pass the torch to new leadership, the process of selling your business is a significant chapter in your entrepreneurial journey. However, before you dive headfirst into the world of business sales, it’s essential to be aware of the common pitfalls that can turn your venture into a rocky road. In this blog, we’ll be shedding light on the most frequent blunders that business owners make when selling a business. By learning from these mistakes, you’ll be better equipped to navigate the selling process like a seasoned pro.

Mistake # 1: Insufficient bookkeeping

Sellers do not always practice proper bookkeeping. Quite often a lot of personal expenses are run through the business which needs to be added back to see a true picture of the business. Buyers need to understand and agree with any add-backs. Messy financials can devalue a company.

When taking a company to market, make sure you have up to date statements from all previous months for us to keep all marketing material current. Not having up to date statements will put off potential buyers and devalue the company.

Bottom Line:

  • Proper bookkeeping is a must
  • Accounting needs to be kept up to date
  • Add-back of personal expenses must be justified
  • Monthly P&L and Balance Sheet must be provided

Mistake #2 Unrealistic Expectations

Selling a business can be very emotional for the business owner, they have a strong connection to the business and rightfully so. Business owners nurture their business for years, so much blood, sweat and tears are put into successfully operating a business and because of this, business owners quite often feel there is worth much more than it actually is. The truth is it is only worth what the market will pay. Valuations serve as a guideline but if you do not agree with the guideline, closing a transaction is nearly impossible. Setting an inflated price will scare away potential buyers and can lead to frustration, disillusionment, and unnecessary delays in finding a truly genuine buyer.

For a business to be sold successfully and efficiently, it’s best to partner with a business broker who can provide an objective perspective. At Robbinex we offer a neutral perspective, free from personal biases or vested interests and it is our job to help the business owner manage their emotions.

Bottom Line:

  • Sellers often think their business is worth more
  • A business is only worth what the market will pay
  • Partner with a business broker for an objective point of view.

Mistake #3: Underestimating the Importance of Preparation

Many entrepreneurs underestimate the time and effort needed to present their business in the best light to potential buyers.

It’s important to take the time to thoroughly organize financial records, operational processes, and legal documentation. A well-prepared business sends a strong signal to potential buyers that the business owner is serious about selling their business. To avoid last-minute scrambles or the compulsion to accept a lower sale price, start succession planning at least 3 to 5 years in advance and keep an updated business valuation.

Bottom Line:

  • Don’t be hasty.
  • Start succession planning early

Mistake #4: Neglecting to Plan an Exit Strategy

Selling a business goes beyond just finding a buyer; it’s about facilitating a smooth transition that secures a business’s legacy. Many business owners will overlook the importance of creating a clear exit strategy. Ideally, business owners should start succession planning at least 3 to 5 years in advance before thinking about selling their businesses. The following questions need to be answered before putting your business up for sale; Are you passing the torch on to a successor? If so, who would that be? Will you remain involved during the transition period to ensure a smooth transition? How long do you expect the transition period will take? Mapping out these details instills confidence in potential buyers that your business is prepared for the future.

Many business owners postpone exit planning because it can be difficult to gather all the necessary info. Robbinex can step in at any point to relieve the stress of planning.

Bottom Line:

  • Transition planning is important to preserve a business’s legacy
  • Start creating an exit strategy early
  • Partner with a business broker to make exit planning easy

Mistake #5: Not Qualifying Potential Buyers

Due diligence is not just for buyers; it’s essential for sellers too. Not every interested party is qualified to run a business or intend on completing the purchase. Failing to qualify potential buyers is not only a waste of time and energy but can cause significant damage to the business. Sharing sensitive information about your business to non-qualified buyers increases the chances of personal info being misused or getting into the hands of competitors. Engaging with numerous unqualified buyers also has an emotional toll on the buyer as it may lead them to question their business’s worth and ultimately sell it for less than its true value.

Avoid these mistakes by having a preliminary screening process and issuing NDAs before dishing out sensitive information. At Robbinex, we have a three-phase process to prepare clients to deal with prospective buyers.

Bottom Line:

  • Sellers should also be doing their due diligence
  • Qualification is crucial. Not every interested party is qualified or sincere about making a purchase
  • Guard your information. Have a qualifying process in place to protect your sensitive information.

Mistake #6 Taking your foot off the pedal

The selling process is very complex and can often take a lot of time which may cause “deal fatigue” and the seller may take their foot off the pedal so to speak.  They may start to ignore their business and not spend the necessary time on the day-to-day operation. The business owner just wants the deal to be done so they can move to the next phase of their life, their mind set may change.  This is not the time to take your eye off the ball, the business must continue running at its optimum throughout the selling process to a final close.

If there is an observable negative shift, it could prove detrimental to the deal, potentially causing it to fall through or necessitating a revaluation of the price and business selling terms. This is especially necessary when financial institutions are part of the equation, and the valuation is founded on significant predictions of future expansion.

Bottom Line

  • Selling a business is a long process
  • Don’t lose sight of the end game and keep business running as usual

Mistake #7 Selling Your Business Unnecessarily

Businesses are often listed for sale at less-than-ideal times, usually due to declining financial performance or personal challenges like health problems or divorce.

Attempting to sell a business during a downturn presents double challenges. The market becomes saturated with businesses like yours for sale, and there’s a reduced pool of potential buyers due to the delay in acquisition decisions to weather the tough times. In such situations, it’s not so much about selling for less as it is about avoiding not selling at all.

Forced business sales driven by personal circumstances might appear inevitable, but there are consistent alternatives to an outright exit. Exploring the possibility of bringing in a management team to take over some responsibilities allows you to step back while keeping the business afloat.

Bottom Line:

  • Seek alternatives before making the hasty decision to sell.

Mistake #8: Professionals aren’t up to par

When selling a business, the stakes are high, and the complexities can be overwhelming. Sellers need to have a team of professionals, including a lawyer, wealth manager and accountant that have experience. In the case of a lawyer, M&A experience is of utmost importance.  Friends and family are convenient, but not always qualified to perform the functions required to successfully sell a business.

Robbinex is proud to be Canada’s exclusive member of M&A worldwide. We help facilitate the expertise required to complete a successful transition.

Bottom Line

  • Sellers need a team experienced professional
  • Friends and family are not always qualified
  • Robbinex can help facilitate the expertise

Mistake #9: Having a big ego

After spending years building and operating a business, business owners are used to “calling the shots.” They may have built something from nothing and because of this they may have a large ego. During the sales process they need to take a step back, humble themselves a bit, be patient and listen to what the buyer needs. Everyone must be flexible.

Bottom Line

  • You have built your business from the ground up
  • You are used to making all the decisions
  • Be patient and listen to the buyer

Partner with Robbinex

Selling a business is a significant undertaking, but with careful planning and avoiding these common mistakes, you can increase your chances of a successful sale. Remember, it’s not just about closing a deal; it’s about ensuring the future prosperity of the enterprise you’ve worked so hard to build.

Robbinex has accumulated knowledge based on almost five decades of experience and approximately 450 closed transactions. Factors we believe are successful to the sale of a business include:

  • Fully understanding the goals of our clients
  • Proper preparation of a business for sale
  • Comprehensive preparation of the information required by investors
  • Effective execution of a transaction, supported by the proven Robbinex Three-Phase Process™ for selling a business

Author: Robbinex

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