Selling Your Business? The Seven Deadly Sins of Business Sales

MMJ Blogger | 24 months ago
Selling Your Business? The Seven Deadly Sins of Business Sales

Are you selling your business? Here are seven key elements to avoid during the sale process.

1. Telling a Purchaser Untruths

Buyers already have uncertainty in abundance when first investigating your business. If your story about why you're selling, or how many hours you work changes, then this is often enough to have a real buyer walk. Our recommendation is to be upfront and honest from the start. This will instill confidence in buyers and increase your chances of a sale. After all, you are responsible for informing a buyer of anything that has a material impact on the business. When potential buyers do their due diligence they will find out how many hours you work in the business and how busy the business is. They will often form an opinion of how they want to operate the business based on this investigation.

2. Letting the Business Run Down or Cease Operating

Your business will attract more offers, more interest and a better price if it looks like a turnkey operation that matches your asking price. If you're a franchisee, speak to your franchisor and get the brand alignment upgrades done early rather than later. Make the business look great, upgrade old equipment and remove any obsolete equipment and stock that the new owner will not need. What's more, don't stop running the business, or you run the risk of removing your ability to sell as a going concern and in effect remove the chance of getting anything above asset value, or less.

3. Muddying the Waters by Mixing Personal and Business

Some business owners run multiple entities, two sets of accounts and/or run all their personal expenses, vehicles, hobbies, interests, second businesses all in the one pot. When this happens the buyer and often the broker, will find it difficult to understand where your personal expenses stop and the business starts. Some business owners also muddy the waters by wanting to continue operating in a competitive capacity after the sale. None of this makes it easy for a buyer, whom wants easy clean and profitable business with the potential for growth in the future.

4. Being Greedy or Worse – Desperate!

Selling your business is an emotional time. Emotions run high for sellers and for buyers. We use the old adage emotions high, intelligence low͛. Essentially you need to keep a lid on your emotions through the sale process and seek advice. Business is business and our recommendation is not to get stuck on principles. Buyers will only buy when there is value for them in the purchase. We have seen sellers jeopardise a sale for relatively small amounts of money, or because the buyer said something they didn't like. Be realistic, accommodating, and empathetic. See the business through the eyes of a potential purchaser and think about how much you would pay.

5. Thinking You Can Benefit Twice From a Cash Business͛

The reality, if you have unreported cash in your business is that you're already probably on the tax departments radar, and any benefit you have already received is probably the only benefit you'll get from operating a cash business. Cash businesses are a red flag for buyers. Furthermore if your buyer needs to obtain finance to purchase your business, then you've just made their job harder, if not impossible. A purchaser͛s adviser will also not look favourably upon cash businesses. Buyers will often say if their lying to the tax department about their profits, they're probably lying to me too! If you're planning on selling in the future, ensure you have a clean set of books to give yourself the best opportunity of a favourable outcome at sale time.

6. Playing the Blame Game

If your business has not been successfully run, then the best way to sell, is to admit your mistakes, and allow the buyer to imagine what they would do differently. Transparency and honesty will allow a future owner to envisage the business the way they would run it. Blaming others for your poor results can often remove the buyer͛s ability to understand the potential for growth under new management. Under new ownership, many businesses flourish.

7. Not Giving Your Business the Opportunity to Shine

As a seller, your duty to your family and to yourself is to list the business for sale with a reputable Business Agent like MMJ Real Estate, who market your business with a strong and structured marketing plan. A good broker should prepare a professional Prospectus (Information Memorandum) and hence give your business every chance to obtain the best price, attract buyers, and increase competitive tension for your business.

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