As a business owner, you will understand the time commitment required to build the long-term value of your business. Our practical experience is that this value can be lost through what are simple errors of judgement or lack of planning.
Selling your business is likely to be the biggest decision you will make, and the ability to plan and foresee mistakes can ensure that you maximise the value of the sale.
The most common mistakes we have witnessed throughout this process have happened because:
- you did not have the experience to recognise it, or
- you did not take the advice of an expert that has experience in delivering these transactions.
Here are the 7 most common mistakes
1. Inadequate preparation
Inadequate preparation for the sale of your business can lead to a rushed sale. Foresight and planning are essential to preserving the value through the sale process.
- are your financial records up to date and ready to go?
- are all non-trading assets removed from the business?
- are the shares held to maximise the taxation reliefs available? and
- are key management incentivised to drive the business forward towards a sale?
At a minimum, you should begin the preparation process six months to a year before you intend to sell the business, and ideally, preparation starts several years in advance. Ultimately proper planning will ensure the process runs efficiently.
2. Not considering the structure of the business or the business sale
If there are multiple shareholders within the business it is important that you have a shareholder’s agreement in place, otherwise, one individual shareholder may be able to hold the deal to ransom. A shareholder’s agreement can ensure that you avoid spending significant amounts of money on legal fees trying to sort out the structure of your business at the point of sale.
It is also important to consider all shareholder's roles in the sale, can one be influential in making other shareholders sell? Or could any possible conflict arise? There needs to be an honest discussion about the structure of the business at the start of the process. It is important to engage with experienced professionals that can identify and discuss the factors involved so that you can ensure that all shareholders enter the transaction from a position of knowledge.
3. Understanding the value of your business
Whilst market forces will have a direct impact on the ultimate value received for the business there are many proactive ways to increase the value of your business prior to putting it on the market.
Understanding and highlighting the factors that drive value becomes increasingly important and can depend on a variety of factors, such as past profitability, future financial performance, asset value, market position, Intellectual Property, unique products, or long-term established trading relationships.
Presenting this information to a buyer in a clear and concise manner will assist in generating value through the process.
4. Choosing the wrong professionals/Trying to do it yourself
As hard as it may seem it is important to remember you are an expert at running your business, not selling it. Yet it’s always surprising how many sellers are averse to hiring professionals to facilitate the sale of their business. Do not hesitate to leverage the expertise of other professionals as an experienced corporate finance advisor can add a huge amount of value to your business sale.
Whilst we, at Pierce, provide financial and commercial advice on a transaction we work with a network of expert legal advisors. An inexperienced legal advisor will complicate the negotiations and in the worst instances can delay or even kill the transaction. However, we understand that the sale of a business will take a long time and we manage the expectations of the buyer and seller from the start. Making sure you engage with experienced professionals makes the process run smoothly for all involved.
5. Selling your business too quickly
Even if you are selling to a close family member or employee, rushing through the sales process is not advised. Selling your business too quickly can lead to preparation tasks being missed, and make you appear too eager to sell which can put buyers off or lead to them offering a lower price. It is important to be prepared for a long-term process to get the best value.
6. Failing to bring your accounting up to date
It is important that your tax and any official records concerning your business are up to date when you come to sell. One of the major reasons for this is that the buyer's solicitors and accountants will have to carry out due diligence checks.
This involves gathering information about all aspects of your business so that the buyer can:
- make an informed decision
- modify the terms of the sale if necessary.
Among other things, they will want to see:
- profit-and-loss statements
- tax returns
- any relevant leases and details of any outstanding loans, with repayment schedules
7. Selling to the wrong person
There’s nothing more frustrating for a seller than ascertaining that potential buyers for your business have not been identified. Potential acquirers can be competitors that are looking to secure market share, international acquirers that are looking to establish a position in the domestic market, or the management team who have detailed knowledge of the business and who may have growth plans.
Selling to the wrong person is costly as you may end up realising a much lower price than if you had considered the full range of potential acquirers.
Undertaking a detailed buyer research project will ensure that you consider all the likely buyers, whether these are competitors, international businesses that are considering an investment in the UK, or businesses that are looking to diversify into new sectors.
The experienced Pierce Corporate Finance team has the tools at hand to identify a wide range of buyers, ensuring that they run a competitive process that will ultimately drive value into the transaction.
Take our FREE personalised report to find out how "sale-ready" your business is or contact the Corporate Finance Team on 01254 688100.
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