Selling a business can be a complex and emotional process, with a lot at stake for both the seller and the buyer. Unfortunately, many business owners make common mistakes when selling their business that can significantly impact the final outcome. This article will discuss some of the most common mistakes people make when selling their business and provide tips on how to avoid them.
- Failing to Plan Ahead
One of the biggest mistakes business owners make when selling their business is failing to plan ahead. Selling a business generally isn’t something that can be done overnight – it requires a lot of preparation and thought. Many business owners don’t start planning for a sale until they are already in a financial crisis or experiencing burnout.
To avoid this mistake, business owners should start planning for a sale one or even two years in advance. This will give them enough time to prepare the business for sale and address any issues that may reduce the value of the business. Planning ahead will also help business owners avoid feeling rushed and overwhelmed during the sale process.
- Overvaluing the Business
Another common mistake that business owners make when selling their business is overvaluing it. This can happen for many reasons, including emotional attachment to the business, a lack of understanding of the market, or an unrealistic view of the business’s potential. However, overvaluing a business will often lead to a lack of interest from potential buyers or a lower sale price.
To avoid this mistake, business owners should have a realistic understanding of a fair market price for their business. This can be done by conducting a business appraisal that takes into account factors such as financial performance, market trends, and comparable sales. Having a clear understanding of this fair market price will help business owners set a realistic asking price and negotiate with potential buyers.
- Neglecting Financial Records
Neglecting financial records is another common mistake that business owners make when selling their business. Well presented accounts for two years or more, is valuable in the saleability of a business. Profit and Loss with a strong net profit figure and clearly identifiable add backs. E.g. interest, depreciation, Associated Directors/owners wages/superannuation.
Buyers and their accountants will need to review financial records to evaluate the business’s financial health and potential for future growth. If financial records are incomplete or inaccurate, it can reduce the value of the business or even scare away potential buyers.
To avoid this mistake, business owners should maintain accurate financial records and be prepared to provide them to potential buyers. This includes income statements, balance sheets, cash flow statements, tax returns, and any other relevant financial information. Having accurate financial records can also help business owners identify areas where they can improve the business’s financial performance and increase its value.
- Failing to Prepare the Business for Sale
Buyers will want to see that the business is well-maintained, organised, and ready to be transferred to new ownership.
This may include organising files and documents, completing any outstanding repairs or renovations, and ensuring that all equipment and assets are in good working order.
- Not Engaging a Professional Business Broker
Finally, many business owners make the mistake of not engaging a business broker to help them sell their business. Business brokers have the experience and expertise to help business owners navigate the complex process of selling a business. They can also help business owners identify and qualify potential buyers, negotiate the sale price, and ensure that all legal, financial and regulatory requirements are met.
It is important that the broker chosen has a thorough understanding of the business sales market in the industry the business is located in. This will also mean they should have a pool of potential buyers in their database.
With less than 50% of businesses listed in Australia selling, and an average time on market of over 6 months it is critical that business owners take measures to avoid these mistakes to give the best chance of a successful business sale.
Are you buying a business in Perth? Do you have a Perth business for sale? For more information on how you can get the best results, contact Angela at Advance Business Brokers today.
