Selling a small business is not easy and in a poor economy, it can be difficult to get a fair price. You can avoid plenty of frustration if you approach the sale in a strategic way and avoid certain common mistakes. Here are five mistakes you can’t afford to make.
- Not preparing properly
Your business will benefit from some proper preparation before a sale. For instance, a buyer will conduct due diligence, which means looking ‘under the hood’ of the business.
Your financial records and other documents must be collected, reviewed, organized and ready for inspection. If you start with the preparation process well in advance of selling, you have plenty of time to prepare.
It is worth hiring Peterson Acquisitions, an M&A firm, to perform an independent, honest, thorough business assessment for you. The firm will analyze your business and present you with a report so you are fully prepared for the sale process.
- Not conducting a business valuation
You can’t set the right price without a business valuation. If your price is too low, buyers may think there is something wrong with the business. If the price is too high, it will discourage buyers. If you have an accurate valuation, you have indispensable knowledge to set the right price and to go into any negotiations with confidence.
One of the best small business merger and acquisition firms, Peterson Acquisitions, will conduct a business valuation for you. A valuation will address factors such as management, computer databases, skilled employees, past and current contracts, trade secrets, name recognition, competitive advantages and more.
- Paying too little attention to confidentiality
If the general public realizes that your business is up for sale, it could affect sales. If you deal doesn’t go through for whatever reason, your customers may unfairly label you as a business that no-one wants to buy.
If you intend to approach competitors in your industry, ignoring confidentiality issues could have serious consequences if a sale doesn’t go through. You are required to divulge the inner workings of your business during the due diligence process and if you don’t take the proper precautions, your competitor could walk off with your trade secrets and some of your key employees.
A good non-disclosure agreement (NDA) gives you legal recourse if a buyer violates confidentiality and a non-solicitation clause will prevent the recruitment of employees.
- Misrepresenting facts to buyers
You will want to represent your business in the best way possible to buyers but you should never exaggerate any numbers. This can cause serious problems down the line. You shouldn’t try to hide any litigation or prior investigations, either.
It is best to talk to advisors about the best time to bring up such issues as you don’t want to wait for a buyer to uncover them. You will need to have a number of warrantees in your purchase and sales agreement. These may include the accuracy of your financial statements, company ownership, tax payments and much more.
- Unwillingness to hire professional M&A advisors
Small business owners may feel they don’t have the budget to bring in experts and that the DIY approach is their best option. That is understandable but there are some risks in going the DIY route. You may be an expert at running your business but you may not be an expert at selling it.
Professional M&A advisors will not only help you to get a good price. They will help you prepare the documents that present your business in the best light, identify buyers, list your business in databases, generate interest, solicit offers, and help to close the deal.