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. Find out more about our free webinars on preparing and selling your business for maximum value, or contact us in confidence discuss your situation, receive a guide valuation and find out how saleable your business is, why now is 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?
At Entrepreneurs Hub, we talk about five key areas that make the difference between success and failure when selling your business. Read more…
How much can I sell my business for?
Determining your business’s value is more than just calculating a number it’s complex with key factors, that said the basic equation is actually quite simple. Read more…
How long does it take to sell my business?
The timeline varies depending on the complexity of the deal and how ready the business is for sale. On average, the process takes around twelve months – sometimes less, sometimes more.
While preparing your business for sale, Entrepreneurs Hub conducts in-depth research to identify potential acquirers. You’ll have the opportunity to review and approve this list before we make any approaches. Once the business is fully prepared – often the most time-consuming step, we begin marketing it. Typically, you’ll start seeing initial interest within a few months, with follow-up meetings happening shortly after.
As these meetings progress – coordinated and facilitated by Entrepreneurs Hub, you’ll begin receiving initial offers. At this stage, we’ll help you assess the strategic fit between your business and potential buyers. When you decide to move forward with an offer, an exclusivity period begins, during which the acquirer conducts Due Diligence (DD).
The DD phase typically lasts two to three months, depending on the complexity of your business. Once complete, the sale is finalised, and you’ve successfully sold your company.
How do I sell my business quickly?
Selling a business quickly is possible, but speed shouldn’t come at the expense of value or deal security Read more…
When is the best time to sell?
Selling your business is a major milestone, and the start of an exciting new chapter, whether that means new ventures or a well-earned retirement.
In our experience, the best time to sell is when you don’t need to – when your business is performing well – not necessarily tied to the calendar. That said, timing can still play a role.
Timing the Market
Strong economic conditions, sector growth, and buyer confidence boost valuations. Don’t wait for a “perfect” market – a well-prepared, well-performing business sells in any climate.
Plan Ahead (12–18 Months)
The best outcomes come from early planning: clean financials, solid forecasting and growth potential.
Spring & Autumn Are Active Periods
The M&A market is typically busier in spring and autumn while summer and winter tend to be slower due to holidays and year-end distractions. However, the unpredictability of deals and negotiations makes this hard to target. We do deals all throughout the year – the key is to work with someone who can keep driving the deal forward whenever it happens.
Financial Year- End
Selling your business well is a long process and aiming for your financial year-end milestone is a virtually impossible task. But it is worth bearing your financial year in mind as buyers will want to review the most up-to-date accounts available.
The best time to sell is when your business is ready, and you are too. With the right preparation and positioning the right timing follows naturally.
Can I sell my business online?
Yes, you absolutely can sell a business online. Many platforms specialise in connecting business sellers with buyers. Read more…