5 Mistakes Business Owners Make When Selling Their Business

You've invested a huge amount of time and effort to build your business into what it is today and now that you've decided to sell your business, you want to make sure that you get the best possible outcome when you take it to market. Preparing your business for sale can be both exciting and bittersweet, but, unfortunately, many business owners make costly mistakes that make the process more difficult and overwhelming.

If you are considering selling your business, be sure to avoid these five common mistakes that business owners often make. 

1. Failing to prepare for the sale

Selling a business requires a lot of thought and careful consideration, but many business owners make the mistake of taking their business to market without properly preparing for the sale. Most start preparing far too late and end up rushing through the sales process, which can lead to poor decision-making. As a result, they fail to optimise their business for a better sales price and are often forced to settle for a lower offer. Optimising a business also includes mapping out key areas of the business to ensure its future success, such as determining key staff for succession, implementing efficient IP and operations systems, securing long-term client and supplier contracts, and so much more.

To achieve the best result, you need to make sure you are ready to sell well in advance and that the business is on a strong footing. That means preparing due diligence information, normalised profit reports, financial records, and other documentation that can be used to accurately determine the state of your business. Having this information ready long before you take your business to market makes it easier to plan ahead for the eventual sale. When you are ready to sell, you will have a clear profit objective and you will be prepared to approach potential buyers.

Related: A Checklist for Business Exit and Sales

2. Overvaluing the business

Another common mistake that business owners often make when preparing their business for sale is overestimating its current market value. By this point, most owners would have spent years building their businesses from the ground up, and it can be difficult to not let an emotional attachment to the business create an unrealistic view of its potential. However, overvaluing your business can drive potential buyers away, increasing the time it is on the market, and, in turn, increasing the pressure to sell.

To determine what your business is really worth, business valuations need to be accurate and objective. In most cases, business valuations are based on the current profitability of your business and the reliability of those profits in the future. Receiving a lower valuation than expected is not uncommon, but a good corporate advisor will use it to outline the steps you need to take to improve profitability and reduce the risks associated with your business. This allows you to maximise the value of your business and move towards your target selling price before you go to market.

3.  Failing to keep accurate financial records

Financial records give potential buyers the opportunity to evaluate the financial health of a business and its potential for growth. If a business is in a good financial position, it is much easier to attract buyers. However, inaccurate or incomplete records are a huge red flag that can significantly increase the perceived risk for buyers. This creates uncertainty around the true state of the business, and buyers can either leverage that risk to try and reduce the selling price or even walk away completely.

As a general rule, businesses should always aim to keep accurate financial records, regardless of where they are in the lifecycle of their business. However, these records are especially important when you are preparing the business for sale and approaching potential buyers. In addition to reducing risk for your buyers, financial records can help you identify areas where you can improve financial performance in order to raise the value of your business.

4. Deciding to sell while revenue is down

Some business owners make the mistake of reactively selling their business during periods of instability or when financial performance is in decline. This is usually done to limit losses and personal risk, however, too many business owners rush into this decision without proper planning or an effective exit strategy. Doing so can significantly reduce the perceived value of the business and give potential buyers greater bargaining power to drive the selling price down.

Rather than taking your business to market when revenue is down, it may be more beneficial for you to hold onto your business for a little longer. If you can build it back up to a better financial position or at least stabilise it, your business will be much more attractive to potential buyers. A good corporate advisor may suggest that you restructure your business to create a more efficient business model or use a business valuation to identify inefficiencies and improve operations. Yes, rebuilding your business will be difficult, but doing so will help you maximise the value of your business and achieve a better sale price.

5.  Not consulting an experienced advisor

Business owners make major decisions like this all the time. They know how the business world works and how to negotiate a good sale — so, why would they ever need an advisor? This is a mistake that far too many business owners make. Selling a business goes beyond just negotiating a good price.

An experienced professional advisor can help business owners navigate all of the complex processes involved in selling your business, from conducting a business valuation to identifying and qualifying potential buyers. Many of these processes require precise planning and accurate reporting, and without an advisor to lend their expertise, business owners run the risk of making all of the mistakes we've mentioned above.

Our Advisory Team can help you avoid these common mistakes and maximise the value of your business before you go to market. With a proven track record of facilitating successful transactions, we have the knowledge and expertise to manage the sale of your business and achieve the best outcome for you. If you are looking to sell your business, contact us today.

Related: Selling your Business: Do's and Don'ts 

Have you noticed our #FridayExpertTips... here's one that relates to Corporate Advisory

“As a business owner, there will come a time when you start thinking about moving on and exiting from your business. Regardless of your reasons and the strategy you choose, you will undoubtedly improve your outcome if you seek professional advice along the way. Succession planning and timing your exit is essential in gaining the best outcome for your circumstance."