The 10 most common mistakes when selling your company
Planning to sell your company but unsure how to go about it? Buying and selling companies can be complicated and there are plenty of obstacles to avoid
Deciding to sell your company is a big decision. Perhaps you haven’t made it yet but the thought has crossed your mind? Or you have decided but don’t know where to begin? Or maybe you have already started but are uneasy about the process?
Here are the 10 most common mistakes you should avoid when selling a business:
1. Not having a rigid valuation of your company
You can´t begin to sell your company without really knowing what it is worth. Given that, you will not be able to negotiate your price rationally with your potential buyers. You could be asking for a price which outweighs your capabilities or ignoring the fact that the real value of your business is much greater than what you are asking for.
2. Changing your interests or motivations for selling the business during the sale.
A good seller has to reflect beforehand about why he wants to sell his company and what he wants to do after it’s been sold. It could be damaging if you don’t have that clear in your mind when it becomes time to sell given that the buyer can notice strange changes in your attitude and raise concerns. They could also interpret your insecurity as a lack of honesty; and because of this your buyer could start to have doubts about you and subsequently your business. This raises his perception of risk and will inevitably lower the value he places on your company.
3. Negotiating with only one buyer
When you begin a negotiation with only one buyer and the buyer finds out, he will start to waste time and will leave every meeting asking for more concessions. The longer this goes on, the lower the selling price tends to get.
4. Not beginning the process with confidentiality
A lack of confidentiality can make the buyer abandon the purchasing operation and can also generate uncertainty in the market about the future of your company. In this way, it can fuel rumors and the market may begin think that your business has spent so much time up for sale because there are problems with it, which consequently would lead to an unwanted devaluation of your company.
5. Undertaking the process alone, not contracting advisors
The sale of your company is a laborious and time-consuming process. Throughout the process you ought to have in mind that the outcome of your company should be what is best for the business. Good advisors are transparent and keep you informed every step of the way.
Without good advisors it is very difficult to maintain confidentiality and ensure a rigorous search process for the ideal buyer.
Even the best negotiators can fail when it comes to the sale of their own business. This is not just any negotiation. You must bear in mind that there will be personal sentiments which are likely to largely influence your ability to negotiate as you no longer have objectivity. Having good a good M&A advisor is crucial to success.
6. Neglecting the business during its sale
As has already been mentioned, the sale of a company is a long process which requires a lot of focus and effort, therefore the fact that an entrepreneur would take on this task alone is baffling.
7. Limiting your scope to your local market
When trying to find the right buyer, it is critical to cast a wide search. This includes finding buyers outside of your local region. If you limit yourself to finding buyers in only one area it can lead to a reduction in confidentiality (local news gets out). It is also unclear that the potential buyers in this area would be the best for the company. Better to cast a wide search net.
8. Not assuming, where appropriate, that there are other minority shareholders (probably with particularly different motives or interests)
It is fundamental that all the shareholders are in agreement over the sale of the company. If there are minority shareholders that are not on board with the company sale, it could endanger the entire selling process and the efforts and money invested in finding a buyer would be in vain. You must make them participants in all that affects the company.
9. Wanting to rush the sale.
Rushing can end up in you losing the possibility of negotiating and finding the best buyer. Your buyer can tell if you are rushing, which may incite uncertainty and will give him ammunition to demand more concessions.
10. Not planning the process.
The selling process always needs to be planned; otherwise you could lose value at every stage. Disorder only brings risks and surprises which results in the devaluation of the company, the elongation of the process, the complexity in selling your business, and, as a result, the possibility of failure will rise.
ONEtoONE Corporate Finance is a global investment banking group with 200+ M&A Advisory specialists in over 30 countries and 50+ cities worldwide. They have advised on over 2000 successful M&A transactions, with >70% being cross-border deals.
Contact:
Stephen McNamara has over 15 years experience in Corporate Strategy, M&A, and Investing. He is currently a Senior M&A Advisor with ONEtoONE Corporate Finance. If you are interested in buying or selling a business or investing, please feel free to email: stephen.mcnamara@onetoonecf.com. All correspondence will be handled with utmost confidentiality.