Top 5 Pitfalls to Avoid When Selling a Business
How does the thought of selling your business make you feel? Excited to hand over the result of years of hard work to your lucky successor? Terrified that you won’t find a buyer because your business has seen better days? Sad that it’s time to leave your team and your professional passions behind? Wistful about what might have been?
An emotional rollercoaster
Maybe you’re experiencing ALL these feelings at once – along with many more! Because if there’s one thing we’ve learned in our years as corporate finance experts (and in our previous careers as entrepreneurs), it’s that selling a business is a road paved with many emotions. The danger of this is that it can cloud your otherwise sound judgement, an ability to see things objectively and your decision-making skills – all key factors in selling a business effectively.
Over 70% of business owners fail to sell their businesses the first time, wasting money, time and effort and slowing them down on the way to realising their goal of moving on to new ventures, or retiring to spend more time with their family and on personal interests. This is stressful and demoralising – two emotions no business owner wants to feel when they should be looking forward to the next chapter of their lives.
The reason for this failure is usually that their business wasn’t ‘exit-ready’ – often because they rushed into selling a business without adequate preparation. Throw lack of groundwork and poor knowledge into the existing cauldron of emotions and you’ve got a recipe for disaster – so it’s vital to understand what your vulnerable spots are so you can remedy them before you go to market.
How to avoid the most common pitfalls when selling a business
As we say in our popular eBook ‘SELL – The 30-Minute Guide to Preparing Your Business for Sale’, pitfalls are like pot holes – when you know where they are you can do your best to avoid them. Here’s some advice to help you do just that, so you can be one of the 30% who sells their business for optimum value, first time round…
1. Not knowing your S.P.O.F.’s (single points of failure) from your elbow. Which areas in your business are high risk and could negatively impact your business if they failed? Locate these points before going to market so you can make improvements.
- Think about your suppliers, for example. If you can only source key products or services from a single supplier, what’s your plan B if they go bust?
- What about your staff? How much would it impact your company if one of your key employees left tomorrow? Make sure all roles are documented, especially those that involve highly specialised knowledge or niche skills.
- Do you have all your eggs in one basket with your clients? Develop a business survival plan in the event that a key account switches to a competitor.
2. Having out of date contracts – or none at all. If you’re serious about selling your business, now is the time to review the situation with your contracts. During the due diligence phase of selling a business, your buyer’s lawyers will ask to thoroughly review contracts with your staff, suppliers, customers and the owner of your buildings. Make sure these documents exist and are up to date, ready for close analysis. Ask an expert to evaluate the standard of your:
- Shareholders’ Agreements
- Memorandum and Articles of Association
- Service Contracts
- Employment Contracts
- Supplier Agreements
- Leases
- Issues
3. Cooking the books. If you were buying a business, one of the first things you’d do is take a long, hard look at the accounts. Ensure you have accurate annual, financial, and monthly management accounting and controls in place and that you, your accountant or your Financial Director is ready to explain them with confidence to interested acquirers. Areas that may need attention as you prepare to sell your business are:
- Suppressed profits
- Undervaluing and over valuing stock and work in progress
- Undeclared cash payments to the business
- Directors’ private expenses running through the business
- A lack of, or inadequate reporting, budgeting and forecasting processes
4. Unprotected intellectual property. If you’ve built a successful brand, have a well-known logo design, or you’ve invented a unique product or process, keep it protected! Just as these valuable assets can be the first thing that entices a potential buyer into acquiring your business, they can be the things that will send them running if they’re compromised in some way. Also think about whether you are infringing someone else’s IP? Or do you have third party IP that is the lynchpin of your business. Get a full review of:
- Patents
- Trademarks
- Registered designs
- Copyrights
- Design rights
- Trade secrets
5. The business is too dependent on you. That 70% figure we mentioned at the start of this article? A large proportion of them deter buyers because their success is too dependent on the knowledge and contacts they have as the owner. If this sounds like an issue that might affect your business, find ways to hand over key relationships and share your knowledge before you sell. Get ready to show buyers how your business has a strong future without you – prepare answers to valid questions like these:
- “What about key client relationships?”
- “Who is responsible for the sales?”
- “Who runs your operations?”
- “What about the development of new products
Entrepreneurs Hub is an approachable corporate finance company helping business owners across the UK to prepare and sell a business – the smart way. Contact Us in confidence to discuss your situation, receive a guide valuation and find out how saleable your business is and why now may be a good time to consider an exit.
Download the full eBook SELL – The 30-Minute Guide to Preparing Your Business for Sale
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FAQs – Selling Your Company
How do I sell my business in the UK?
Selling a business in the UK typically involves preparing financial information, obtaining a valuation, identifying suitable buyers and negotiating the terms of a sale. Most owners work with an M&A adviser to manage the process confidentially, approach qualified buyers and maximise the value achieved.
At Entrepreneurs Hub, we talk about five key areas that make the difference between success and failure when selling your business. Read more…
What is my business worth?
A business is typically valued by applying a multiple to its sustainable profit, often EBITDA or adjusted net profit. The appropriate multiple depends on factors including growth, recurring revenue, customer concentration, management strength, owner dependency, market conditions and buyer demand.
Determining what your business is worth involves more than applying a simple formula. Use our Business Valuation Calculator to obtain an initial valuation range, or read our simple business valuation guide to understand the factors buyers consider.
How long does it take to sell a business?
Selling a business in the UK typically takes around 12 to 18 months from initial preparation to completion, although some transactions may be quicker or take longer. The timeline depends on business readiness, buyer demand, deal complexity, due diligence and how quickly the legal terms can be agreed.
Preparing accurate financial information and organising key documents in advance can help reduce avoidable delays. Read our complete business sale timeline to understand what happens at each stage.
When is the best time to sell a business?
The best time to sell a business is usually when it is performing strongly, its future growth is clear and you are not under pressure to complete a sale. Buyers are generally more attracted to businesses with rising or stable profits, reliable financial information and credible opportunities for further growth.
Business owners are often in a stronger position when:
- Revenue and profits are growing or consistently strong
- Financial records are accurate and up to date
- Future growth opportunities can be clearly demonstrated
- The business is not overly dependent on the owner
- There is a capable management team in place
- The owner has started preparing well in advance
Market conditions can also affect buyer appetite and valuation. Factors such as sector growth, access to finance and competition between buyers may support stronger deal activity, but preparation and business performance are usually more important than trying to identify a perfect month to sell.
Ultimately, the best time to sell is when both you and the business are ready, and the company can demonstrate sustainable performance and future value to potential buyers.
Use our Exit Readiness Tool to assess how prepared your business is, or read our guide on when to sell your business for further guidance.
Do I need an adviser to sell my business?
You are not legally required to use an adviser to sell your business, but many owners appoint an experienced M&A adviser to help manage the process. An adviser can prepare the business for sale, identify and approach suitable buyers confidentially, coordinate negotiations and support the transaction through due diligence.
The right adviser can also help create competitive tension, protect your time and reduce the risk of avoidable mistakes. Read our guide to choosing the right business sale adviser to understand the different types of support available.
How do I prepare my business for sale?
Preparing a business for sale involves strengthening its financial performance, reducing risk and making sure it can operate successfully without heavy reliance on the owner. Buyers will also expect accurate financial records, clear contracts, organised documentation and evidence of future growth.
Preparation should ideally begin well before approaching the market, giving you time to address weaknesses that could affect value or delay the transaction. Use our Exit Readiness Tool to assess how prepared your business currently is.
How is confidentiality protected during a sale?
Confidentiality is protected through controlled information sharing, anonymised buyer approaches and non-disclosure agreements. Potential buyers usually receive limited information at the start of the process and must sign an NDA before commercially sensitive details are released.
Prospective buyers should be assessed before receiving further information, with documents shared gradually according to their level of interest and credibility. A well-managed process also allows the business owner to retain oversight of who is approached and what information is disclosed.
What documents do I need to sell my business?
The documents needed to sell a business commonly include financial accounts, management information, forecasts, customer and supplier contracts, employment records, tax information and evidence of intellectual property ownership.
Buyers may also request details of property, insurance, legal disputes, regulatory matters and company ownership. Organising this information before due diligence begins can reduce delays and help maintain buyer confidence. Our Business Sale Due Diligence Checklist explains the main information buyers are likely to request.
What’s the quickest way to sell a company?
Selling a business quickly is possible, but speed shouldn’t come at the expense of value or deal security Read more…
What’s the best way to sell a business online?
Yes, you absolutely can sell a business online. Many platforms specialise in connecting business sellers with buyers. Read more…
How can I increase the value of my business before selling?
You may be able to increase the value of your business by improving sustainable profits, developing recurring revenue and reducing reliance on individual customers or the owner. Buyers also value capable management teams, reliable financial reporting, scalable operations and clear opportunities for future growth.
The earlier you identify the factors affecting value, the more time you have to make meaningful improvements. Use our Business Valuation Calculator for an initial indication of value and our Exit Readiness Tool to identify areas that may need attention.