What company owners can learn from previous businesses sold

Past experiences of selling a business can be invaluable for the next sale. In this piece, Jo Thornley of BusinessesForSale.com gives some do’s and don'ts to keep in mind.

Selling a business is a strategic decision that takes a considerable amount of time to accomplish. Like every other business option you address, good planning will help you to avoid most of the pitfalls.

Past experiences of the process can be invaluable, so here’s a reminder of some do’s and don’ts to keep in mind:

It should not be a snap decision

Selling a business is a process rather than an event. So if you leave things late, it’s unlikely the market will work in your favour. For instance, unless you have monitored sale trends very carefully you may fail to understand the best time to sell. In addition, you will not be able to maximise the appeal of your business if you have not studied what current buyers are really looking for.

Lack of preparation may also leave you vulnerable to the probing questions prospective buyers are bound to ask, as well as sending a message that a hasty decision to list the business must mean you are desperate to dispose of your business for some reason.

Does your valuation stack up?

Overvaluing your business is no more than taking a gamble that your would-be buyers won’t do their homework. If you are asking for an unusually high price, any interested purchaser will expect to see evidence of what you can offer to support an over-optimistic valuation. Rest assured that one of the primary aims of any pre-sale due diligence from buyers will be to unpick your valuation figures to test and verify such assertions.

Be fair, honest and transparent

Buying a business is a major commitment and you would be unwise to assume that you will find a buyer whose approach will be casual and reckless. Therefore you must avoid any temptation to embellish your description of the business with inaccuracies and half-truths.

Likewise, you must never try to hide any uncomfortable facts a buyer needs to know. If you have lost interest in the business and know your company is in a downward spiral, you will be in a much better place if you disclose such facts up-front before a due diligence process uncovers them anyway. Otherwise, your potential buyer will not only adjust their assessment of the business, they will also lose confidence in you and as a result you can risk losing the sale.

Prepare your business for sale

To get a good price for your business, you will need hard evidence that it is consistently profitable and preferably has growth potential that a new owner could exploit.

Therefore you should be well advised to begin preparation before any planned sale. Prospective purchasers request to see three years of audited accounts. These documents are sure to reveal any short-term changes of strategy that were solely intended to make your latest profit figures look better.

Cost reduction must also be given careful consideration. If your valuation method is based on multiples of your net profit, then any excessive operating costs will reduce your net profit and thus your final valuation figure. Whilst this may potentially reveal inefficiencies in your cost management, it is more damaging to pre-sale by lowering the perceived profitability (and the appeal) of your business. This is a real case of shooting yourself in the foot.

Make yourself dispensable

Your buyer will be keen to explore your leadership role in the company and to weigh this against the calibre and performance of your current management team.

The ‘one man band’ model is known to be a risky prospect once the owner leaves the business. Therefore, like any truly stable and forward-thinking business, you should have a strong management structure which can demonstrate its ability to guide and direct the company with sound business principles, thus allowing it to survive and prosper even in your absence.

Adopt an open approach

Those interested in purchasing your company have a right to be well informed about its performance and prospects. Being ultra-defensive doesn’t mean you will be able to hide bad news, so why not make a virtue of your willingness to make a full disclosure of everything relevant to a buyer’s enquiry? This will undoubtedly inspire confidence and may prove to be the decisive factor that leads to that purchase offer.

Business sale professionals will tell you it’s never too early to begin preparation on selling your business, and many of the most successful sale plans are sketched out even before the business starts trading. So putting the exit sale on your agenda well ahead of schedule will always pay off over the longer term.

Jo Thornley is head of brand and partnerships at Dynamis.

Joining in 2005 to co-ordinate PR and communications and produce editorial across all business brands, she earned her spurs managing the communications strategy and now creates and develops partnerships between BusinessesForSale.comFranchiseSales.com and PropertySales.com and like-minded companies.

Related Topics

Selling a business

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