Mistakes to Avoid
All too often, when an entrepreneur wants to sell their business, regardless of the reason, they want to immediately clean their hands of their business. Selling a business, big or small, takes time. Here are some mistakes to avoid to have a successful sale:
Selling at the Wrong Time
• It’s a good idea to sell your business when it is doing well. A company’s performance is what makes it attractive and valuable to a buyer. It’s also important to consider economic factors and capital market conditions. With all these components added up, there’s a small window of opportunity to sell your business to get the most value.
Lack of Planning
• Selling a business is a long and time-consuming process that can typically take a lot longer time than most people anticipate. Preparing ahead, even before you are wanting to sell your business, is key to a successful sale. Keep updated business records, at least 3 years of financials, customer data, inventory and detailed business history on hand. All of this information should be clean and accessible at any time for when you want to sell. Having a solid plan so you are ready to sell will benefit you in the end.
Wanting Too Much or Too Little for Your Business
• It’s likely your business is worth more to you than it’s actually worth. Afterall, the time, energy, and money you’ve spent to build your empire included blood, sweat and tears. Consider your business, the marketplace, the economy and similar businesses to yours. If you price it too high, it will be difficult to find a buyer who agrees your business is worth the price tag. Pricing your business too low is also unattractive because a buyer would be suspicious as to why its priced below the market cost. Before a random dollar amount is assigned to your business, consider having a professional business valuation done by the Canadian Institute of Chartered Business Valuators. This will give you a realistic price for your business. Alternatively, if your company doesn’t generate business, then you can have a going out of business sale to receive some instant cash rather than just dissolving and shutting down.
Having the Wrong Person Represent Your Business
• Selling your business is similar to selling your home. You want to find the right realtor that knows the ins and outs of your home, the specs, and the features that make your house more special than other homes on the market. When you sell your business, interviewing and selecting the right brokers or consultants is just as important. Whoever you choose to represent your business should know it well enough to provide answers to questions and showcase the advantages of purchasing your business while also understanding and protecting your interest as a seller. Take the time to properly vet your candidates to choose the one you want representing your business and values.
Not Marketing Yourself
• Sure, you’ve hired a consultant or broker to help you with the sale of your business, but overall, no one knows your business better than you. Information travels fast through word of mouth. Make sure you have a strong plan so that if an opportunity presents itself, you can market your own business to a potential buyer.
Selling Your Business to the Wrong Person
• It can be very exciting when you get your first offer to purchase your business, but many businesses under new ownership struggle to succeed. Vetting your potential buyers to ensure they have the experience and are serious is important for the continuing success of the business. Having multiple potential buyers allows the opportunity to find the right fit and negotiate the selling price.
Evaluating Your Business for Sale
If you’re thinking about putting your business up for sale, consider if you have something that’s worth selling that someone will want to buy. Will your business be profitable in the future for the new owner? Below are some things you may want to consider before you put up the ‘For Sale’ sign.
Even if you have a great business that is extremely profitable but relies on you to succeed, your business will be tough to sell. If someone else can’t run it and be profitable, why would they buy it? If this is your business, then it’s time to make changes to make your business valuable. Take time to look at your workflow and determine what can be passed off to your employees and what can be automated. Be sure to electronically document your process so that someone can step in and know what and how the job needs to be done. Train your employees to be efficient without you being present. If you can step back from your business for a lengthy period, then it’s a good sign that your business is not overly dependent on you.
Long before you plan to start selling your business, make improvements to increase its value. Whether it’s boosting your profits with healthy earnings, increasing sales or lowering expenses, all of it will affect your overall financials, which will likely be shown to your potential buyer. Consider what changes can be made to increase operational efficiencies without affecting operations. As a business owner, you should continue to invest and improve your business so that when you are ready to sell, there’s fewer overall improvements that need to be made to make your business valuable and attractive to buyers.
Types of Sale
While each business sale is unique, it typically falls into one of the following categories: asset sale, share sale or a merger. When you want to sell your business, ensure you are clear about what you are actually selling. Which assets? The incorporated company?
• Asset Sale - the purchase and sale of items, not the incorporated company itself. In other words, it is the physical assets such as client list, trademark, machinery, contracts, etc. The buyer can purchase these assets without assuming the seller’s liabilities. The buyer can decide which assets they wish to purchase, and the seller can decide which items they don’t want to sell.
• Share Sale - the sale of everything, including the incorporated company and the company’s liabilities. Once the shares are sold, the purchaser controls the business and all its assets and liabilities.
• Merger - when two businesses become one company. One company takes ownership of all assets, and the second company ceases to exist. New shares are issued by the existing company to replace the shares owned by the disappearing corporation.
Selling Your Business to Family or Friends
Doing business can be tricky when it comes to people you know, let alone family or friends. Below are some tips for a smooth and problematic free transaction:
Everything in Writing
• If you were selling to a stranger, you’d ensure the paperwork was in place to protect yourself and the buyer. Don’t take the easy way out when selling to family or friends. To avoid confusion and disagreements, have the paperwork there so everyone is clear on the terms of the purchase and sale. Make sure all the details are disclosed, including payment amount, payment schedule and anything of importance that could possibly cause any kind of future problems.
• Selling to family and friends can be a lengthy process. Not all parties involved may understand the process, and it’s best to avoid any emotions that this process can cause. Hiring experts to help navigate the sale can be beneficial in omitting any hard feelings that can come with doing business with people you know.
Keep It Professional
• This one is tough; after all, it’s not like you don’t know the buyer. Being professional keeps emotions in check and gets the purchase and sale moving along. Have open communication to avoid any problems.
Are Your Selling to the Right Person?
• Just because a friend or family member wants to buy your business doesn’t mean you need to sell it to them. Think about whether that person is a suitable candidate for purchasing your business if they have the right skill set and interest. Selling your business to the wrong person would result in an unprofitable business and a difficult purchase and sale transaction.
Get a Valuation
• Just because you are selling to someone you know doesn’t mean you need to sell it at the best price or for a reduced price. Getting a proper valuation gives you and your family or friend a good idea of how much your business is worth without feeling like you are ripping each other off.
Being meticulous with your business files, financials and records presently will help save you time and money in the long run. You never know when you might need to sell your business; when that time comes, it’s better to be ready than to trace back years of records.