Business exit strategy planning or selling your business outright is one of the most crucial elements of a company’s life cycle. If not planned correctly the negative financial impact for the company and individuals involved can be significant, not least in financial terms.
So what are the common mistakes an owner should avoid making?
1 Providing out of date or wrong documentation
When you have owned your business for several years, you start to believe that all the necessary paperwork you need is at hand and ready to hand over to any potential investor or buyer. Unfortunately we often meet business owners who are trying to sell their companies with inadequate, out of date, or simply wrong documentation. If your documentation is shoddy or even worse full of errors or inconsistencies you will probably lose an eager buyer or have to reduce your selling price as you cannot explain the differences properly.
2 Not planning the sale process adequately in advance
The process of selling your business is complicated and needs planning, otherwise it may stall mid sale and interested buyers will move on to other opportunities. Every potential buyer will pay expensive advisors to review all the deal details; so if there are any problems in the business these will become very apparent. The sellers will be at a major disadvantage and the buyers will use this to their advantage to reduce the asking price.
Plan the sale well in advance, maybe even up to 3 years ahead, in order to sort any issues before they become problems – there should be no skeletons in the closet for a purchaser to discover.
3 Getting the wrong advisors
You could sell your business yourself; it is not rocket science, just as you could also sell your house yourself. However if you have not done it before yourself, you will almost certainly not maximise the value by getting the serious buyers involved.
I am aware of one aborted sale of a company when the majority shareholder got her boyfriend to try and sell her business because he was a director in a business that had been sold previously (he did not lead the sale) and she did not want to offend him. No surprise that the sale fell through because the inexperienced boyfriend tried to put an unjustifiable price on the business so that buyers walked away when the advisor / boyfriend could not explain the high price and he adopted a ‘take it or leave it’ position.
As well as damaging the company’s value in the marketplace, the other shareholders were horrified and it took over 3 years before the company had to confidence to approach the market again.
4 Telling the wrong people you are selling your business
Serious investors and buyers always conduct deals under strict confidentiality in most cases under signed mutual non-disclosure terms. Sometimes the selling company has to announce the selling process, e.g. when it is in receivership or undergoing a restructuring. So why should you not tell everyone unless you really have to?
Existing customers and suppliers will not like any uncertainty and may find another company to do business with – this will adversely affect your current income.
Competitors will use this against you and will tell everyone they know in the marketplace. Your own team’s morale will certainly be hit and they may just leave rather than living with the uncertainty.
5 Creating a business that is too dependent on the owner
CMC has worked with many owner manager businesses in which the original owner spent decades building his business, only to find when he decided to retire and sell his business; the business could not function without him. The owner manager was not only MD he was handling all key decisions in marketing, sales and client service, despite having hired very good people to manage these functions.
Having a business too dependent on the current owner or on a small number of major customers can dramatically hinder the company’s sale price. Any buyers will perceive more risk, the result can be selling the business for less than originally planned and the owner being required to stay on longer to insure a smooth transition via some sort of aggressive earn out.
CMC has put a guide together to help business owners with succession planning and think about their exit strategy, download it from here.
If you want to discuss your personal objectives and how to prepare for your future exit or business sale and get everything in place please fill in the form below