Selling your business is a complex undertaking involving many factors. When there’s a good outcome, it’s the product of lots of hard work and planning. But what goes wrong when businesses don’t get what they plan? Here are the most common mistakes when selling a company.
Thinking You Know the Best Buyers
Many owners choose a buyer based on who approaches them or who is rumored to buy. But rarely does the owner actually know who the best buyer is. In many cases, a business can sell for much more than the owner’s first buyer pick is willing to pay. Today’s most aggressive buyer might be new to the market, and new to the owner. So how do owners find the right buyer? Take off the blinders. Think outside of the box, and look everywhere. Consider any buyer who has called in the past. But also widen the net to find a premium buyer. When listing potential buyers, ask the following:
- Is there a potential strategic fit within the industry?
- Are there private firms seeking a new platform or an add-on acquisition?
- Which companies have a similar customer base but a different service or product?
- Which companies seek entry to the marketplace and could add value to your business?
Focusing Too Much on the Asking Price
Many business owners believe they must stick to an asking price. But owners considering a sale should be careful about this strategy. If a potential buyer knows your asking price, what incentive do they have to pay that price?
Asking prices can set a ceiling for what a buyer might pay. Professional M&A advisors rarely set an asking price. They use a competitive bidding process to let buyer set the price. Experienced buyers are able to determine what they will pay on their own. They understand that pressuring a seller can cause novice sellers to give in, and knowing the asking price can make it even easier to extract a concession from the seller. Some owners attempt to prevent this by setting an unreasonable asking price. No buyer wants to work with an unreasonable seller, though, so this strategy can backfire.
Trust the acquisition process and your advisor. With sufficient buyers available, it’s usually easy to find a premium buyer willing to pay a premium price.
Taking the Easy Road
Some owners are anxious about the sale, and lack time to shop and locate a wide array of buyers who can submit multiple offers. Many owners do not want people to know about the sale, fearing the potential impact. Thus some owners only talk to a small number of “friendly” buyers, who might not be the ideal choices. This strategy reduces competitive pressure, potentially also reducing the eventual sale price.
Many owners believe that as long as only a few buyers know about the sale, the sale will remain confidentiality. But damage can occur the moment an owner indicates a willingness to sell. It’s always safest to obtain a signed NDA before discussing a possible sale, even with a buyer you trust. Inexperienced owners sometimes tip their hand without such agreements, endangering their business. Without an agreement, there is nothing in place to stop the other party from starting a rumor about the sale, or otherwise tanking the sale.
Five Talents Financial Group
There comes a time when business owners should decide how they will handle the exit of their business. Prudent entrepreneurs do not leave this critical juncture to chance, they plan for it thoroughly and well before such an event should occur. Successfully navigating the sale or transfer of your business requires a dedicated and capable team. The members of Five Talents collectively posses nearly a century of business experience combined with specific industry training and certification. The skills and know how, combined with a deep commitment to the best possible outcomes for our clientele, enable us to provide you with advisory services you can feel secure with.
Give us a call to have a confidential discussion about what may be right for you and your family.