As a business owner, you will understand how hard it is to build long-term value and yet how quickly one mistake can destroy a fortune or ruin the biggest deal of your life. Therefore, the one thing you don’t want to do is work so hard to build a successful business to then lose substantial value through avoidable mistakes.
Selling your business is likely to be the biggest decision you will make, and although a lot of people successfully sell their businesses, many do not maximise the value as a result of poor planning.
The most common mistakes we have witnessed throughout this process have happened because either: A) you did not have the experience to recognise it, or B) you did not take the advice of an expert that has experience in delivering these transactions.
Here are the 7 most common mistakes…
Inadequate preparation for the sale of your business can lead to a rushed sale, giving rise to financial mistakes that ultimately reduce the value received. It is important to understand that preparing to sell your business is critical to achieving a successful exit, and following some simple rules can enhance the value, including:
At a minimum, you should begin the preparation process six months to a year before you intend to sell the business and ideally, preparation starts several years in advance. In addition to helping you prepare all the required documents, proper planning will ensure the process runs efficiently, the longer you have to prepare the more chances you have to maximise the value of your business.
It is important that you have a shareholders agreement in place, otherwise, one individual shareholder may be able to hold the deal to ransom. A shareholders agreement can ensure that you avoid spending lots of money on legal fees trying to sort out the structure of your business at the point of sale.
It is also important to consider all shareholder's roles in the sale, can one be influential in making other shareholders sell? Or could any possible conflict arise? There needs to be an honest discussion about the structure of the business at the start of the process, as a lot of factors need to be considered. Therefore, it is important to engage with experienced professionals that understand the factors involved so that you can ensure that all shareholders enter into the transaction from a position of knowledge.
Selling a business will probably be the largest financial transaction many owners will carry out, so it’s even more important you maximise the price. Sometimes, all you need to do to see your business rise in value is to wait for the right market conditions to sell it, but there are many more proactive ways to increase the value of your business prior to putting it on the market.
Understanding and highlighting the factors that drive value becomes increasingly important and can depend on a variety of factors, such as past profitability, future financial performance, asset value, market position, and factors that make your business unique when considered against the competition.
As hard as it may seem it is important to remember you’re an expert at running your business, not selling it. Yet it’s always surprising how many sellers are averse to hiring professionals to facilitate the sale of their business. Do not hesitate to leverage the expertise of other professionals as an experienced corporate finance advisor can add a huge amount of value to your business sale.
Whilst we, at Pierce, provide financial and commercial advice on a transaction we work with a network of expert legal advisors. An inexperienced legal advisor will complicate the negotiations and in the worst instances can delay or even kill the transaction. However, we understand that the sale of a business will take a long time and we manage the expectations of the buyer and seller from the start. Making sure you engage with experienced professionals makes the process run smoothly for all involved.
Even if you are selling to a close family member or employee, rushing through the sales process is not advised. Selling your business too quickly can lead to preparation tasks being missed, it can also make you appear too eager to sell which can put buyers off, or may lead to them offering a lower price. It is important to be prepared for a long-term process to get the best value.
It is important that your tax and any official records concerning your business are up to date when you come to sell. One of the major reasons for this is that the buyer's solicitors and accountants will have to carry out due diligence checks.
This involves gathering information about all aspects of your business so that the buyer can:
Among other things, they will want to see:
There’s nothing as frustrating for a seller to realise that potential buyers for your business have not been identified. Potential acquirers can be competitors that are looking to secure market share, international acquirers that are looking to establish a position in the domestic market, or the management team who have detailed knowledge of the business and who may have growth plans.
Selling to the wrong person is costly as you may end up realising a much lower price than if you had considered the full range of potential acquirers.
It is also critical to understand that once you have sold the business you have no involvement with how it is run, so you need to be comfortable that the new buyer has ultimate freedom to operate the business as they see fit.
A Corporate Finance professional is the perfect person to guide you through the business sale process. The Corporate Finance team at Pierce has extensive experience in acquiring and disposing of companies across a broad range of sectors and has established connections with a network of professionals who have clients that are interested in acquisitions.
We are able to add value to the process by negotiating and approaching the right people, we look to understand the financial results of the company, and present them in the best way possible. We create a detailed document that tells your story as a business, highlights what makes you stand out from your competition, and includes everything a buyer needs to know and will be looking for.
We ensure that we engage with those buyers that understand the value of your business. We project manage the whole process, ensuring all parties are aware of the transaction's progress and ensuring all due diligence runs as smoothly as possible.
We can take away much of the pressure of preparing your business for sale to ensure that you are able to concentrate on running your business. Our Corporate Finance team will support you through the financial, taxation, and commercial aspects of selling your business.
We ensure the transaction is planned and managed to a specific timetable and executed efficiently and confidentially.
We support you through the whole process from considering the sale to delivering a successful deal completion and through our network ensuring that you can invest the proceeds efficiently.
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