You wouldn’t think twice about contacting a real estate agent when selling your house, why is it any different when selling your business? The same principles apply and are magnified during the sale of a business as in most cases, businesses are worth more than real estate.
As such, a Do-It-Yourself approach can result in business under valuation or no sale at all. In this article, we summarise the common pitfalls and highlight important steps you should be taking when considering the sale of your business.
Get yourself Sale Ready
Once the decision has been made to sell, business owners must get their businesses ‘sale ready’. The most important aspect of this process is ensuring that the business can operate just as effectively without the owner, as it could with them.
The best position to be in is if the business owner can make themselves disposable.
Ensure good systems, people and processes are in place that enable the business to operate whether the owner is present or not.
Having plans for future prospects and growth that are clearly articulated, properly costed and considered, will allow the prospective buyer to promptly understand what’s achievable.
The tax implications of selling your business and structuring for an optimal sale outcome. This will avoid a common pitfall where owners are prepared to sell however later discover there are adverse tax consequences.
Why are advisors essential when selling a business?
Business owners need to continue running their business throughout the process of selling. The selling process can be distracting and taking ones’ eye off the business operations can have adverse effects, especially if the sale doesn’t occur.
A Circuit Breaker when negotiating
Advisors act as a circuit breaker when negotiating an outcome. An advisor will take emotion out of the equation resulting in an easily reached outcome. Any negative comment received in a negotiation, whether warranted or strategic, can be harmful in terms of how an owner responds. This is especially the case if the response is directed to the owner and not an intermediary.
Creating Competitive Tension
As a business owner, creating competitive tension and therefore the best outcome and price for the business is difficult. Additionally, having multiple potential buyers sending through enquiries and requests can be very stressful. Therefore, having an advisor and team as support is important and useful in maximising an optimal outcome.
Managing Opportunistic Approaches
Often, buyers approach business owners in the first instance to make an offer. These opportunistic approaches immediately put the owner on the back foot leading to unrealistic expectations of timeframes and value of the business in the initial stages. It is of great importance for the owner to understand that the buyer has likely already contacted their advisory team and completed due diligence in advance of making the offer. Being able to take a breath and contact an advisor to get sound advice on whether this is the right thing to do and discuss a realistic timeframe will enable an optimal outcome.
Providing support – balancing running a business with selling a business
Business owners should not underestimate the time and effort involved in the selling process. It is a full-time role running the business, as it is selling the business. Having multiple buyers to consider and attend to causes further difficulties. Managing all their expectations as well as the business and ensuring you are not losing any business value at the same time is often unmanageable.
Business owners should not decide to sell their business overnight. Plan and over plan in relation to what is wanted and how to get that. This may take months or even years to formulate.
Remember an advisor will
- share the load and problems,
- have a fresh approach,
- create competitive tension and
- act as a circuit breaker between the buyer and seller.
This will assist a business owner in getting the best outcome.
If you have any queries regarding selling or purchasing a business, please contact your usual Mazars advisor, the author or one of our advisory specialists via the form below or on:
Author: John Blight
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