5 Mistakes to Avoid When Selling Your Small Business
Several entrepreneurs prepare an exit strategy for early retirement to make their future life comfortable. However, they are unable to salvage their venture from being sold at a lower price than expected. It happens to a lot of sellers as they often commit unintentional mistakes, which make all their effort of building the entity seem worthless. It is common knowledge that it is not an easy feat to get a desirable price within a defined timeframe.
Thus when you intend to sell your small business in Australia, you must be cautious of such errors that can affect the selling price. Equipping yourself with information about the current economic conditions, market trends, and industry reports can go a long way in helping you make an informed decision. Also, the best way to gain knowledge is to learn from the failure of others. So here is a list of the frequent mistakes committed by entrepreneurs when selling a small business. It will help you to stay away from making such unpleasant blunders.
1. Preparing Your Business For The Sale
You might be happy with the growth of your small business, but it may not be enough to allure a prospective buyer. It is essential to make your venture sellable by working on improving its market share, sales figures and profitability. Clearly, all this cannot be achieved in a few days. Thus the planning must begin two to three years before you wish to sell the company. A long-term plan will give the buyer the satisfaction that it is not an urgent sale due to falling revenue.
Therefore, you must have a positive cash flow before you enlist your business for sale. Besides profits, you must remove every noticeable issue within the organisation that can put off the buyers, such as the arrangement of financial information, ending of the lease, employee attrition. You must build the market value of your asset so that the asking price seems justified. Also, you must have all the financial reports and disclosure documents ready as the enquiries can start pouring in from the first month. So be prepared to clinch the most lucrative deal with all the required paperwork.
2. Misrepresentation of Actual Conditions
You might want to inflate the turnover and exaggerate the projections to get a better price for your business, but it will be considered blatant cheating. No buyer will pay the price before researching the company as it is one of the important factors to consider when buying a business. If they find out that you have lied about the figures or provided them with false data about the business, then they can hold you responsible for cheating and take legal action against you.
It will not only break the deal but also malign the image of your entity in the market. You will not be able to sell it anymore, and the business will suffer from huge losses. You should also not try to hide any litigations or debts from the candidates. Thus you must present all the facts and figures with details to the potential buyers so that they do not feel misguided or deceived.
3. Depending Too Much On Brokers
Several entrepreneurs make the mistake of putting the responsibility of the sale completely on the brokers and not taking an interest in the process. However, it is the worst approach. Nobody knows the business the way you do. You are the one who can answer all the questions of the prospective buyers with confidence and persuasion. Your passion for the company will bring in the required enthusiasm and energy in the whole discussion.
A broker, on the other hand, has several more businesses to sell and doesn’t have in-depth knowledge about each one of them. The presence of the owner instils assurance in the buyer’s mind that the business is worth the investment and will continue to progress. It will help them to understand that the seller is equally interested in the deal, and it will not be a risk to start the negotiation process. It is wiser to stay on top of the selling process as the face of the company. It is also helpful in maintaining the confidentiality of the sale if you have not informed your staff about the same.
4. Setting An Unrealistic Price For The Business
Disassociating your emotional attachment from the business is challenging. An enormous amount of physical, mental and emotional investment goes in setting up a business from scratch. Thus when you are selling it, you might become overwhelmed with sentiments and price it too high. An excessive amount will turn away all the buyers, and you will not be able to sell the business. On the other hand, if you have not been getting the desired stream of qualified buyers, then you may think about bringing the price down.
However, it should not be too low. Otherwise, you will lose a good amount of money. You must take help from your lawyer and accountant to evaluate the cost of the business. You must also consider the economic conditions and the trending prices of similar businesses being sold in the market. Sometimes, a sudden tragedy or health issue can make you sell a business in a hurry. However, you must always keep all these considerations in mind before setting a price for the entity.
5. Failing to Screen the Prospective Buyers
When you are running a business, you are concerned about its success and security of confidential information related to the projects, processes and systems. You cannot hand over the data to everybody who enquires about the business listing. The sensitive information can get into the hands of the competitors and lead to a big blow to the business.
Thus you must pre-qualify all the candidates by checking their background, experience, financial status, skills and knowledge. You must sign the confidentiality agreement or the non-disclosure agreement with them before providing them with the classified information related to your product line, target market, consumer database, financial forecast, etc. It will make sure that casual buyers find their way out early in the process and do not waste your time and energy.
It is a challenging task to sell your small business in Australia. Thus you must be aware of the typical mistakes made by entrepreneurs while selling their companies so that you do not repeat them and make a satisfactory profit from the sale.