In this series of articles, we are reviewing the top mistakes business owners must rectify before they consider selling their business.
(Missed any of the previous parts? No worries, you can catch up on the series right here: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8, Part 9, Part 10, Part 11, Part 12, and Part 13)
Selling a business is inarguably the most popular exit strategy for business owners who are ready to call it quits. Whether you are eager to convert the business into liquid assets or are looking forward to the comfort of retirement, selling your business is an option that makes sense.
However, you need to be prepared for the complexities and intricacies of the sales process, as they may become overwhelming and difficult to navigate. Failing to be cognizant of these mistakes can prevent a highly valuable transaction from materializing. You can ensure a successful sales transaction by avoiding some common and easily addressable mistakes business owners make when selling and rectifying them before you proceed to the sales process.
Deadly Mistake: Ignoring Your Business’ Shortcomings
The fourteenth mistake we want to explore in this series is ignoring the business’ shortcomings. This is a potentially dangerous mistake on various different levels, as it can hinder the progress and performance of your business, reduce its value, and prevent you from taking the necessary steps to address those issues that may be driving down the value of your business.
If you choose to lock on rose-colored glasses and decide to ignore any weaknesses in the business, your exit strategy may crash before it launches. You need to put your best foot forward when seeking a suitable new owner for your business. Pinpointing the shortcomings of your business and taking steps to rectify them can help you do just that.
Taking every possible step to make your business more valuable, attractive, and sellable will always make sense. There are many actions that can be taken to optimize the business operations, staff, financials, assets, and many other value-driving factors. However, you need to recognize when these areas could use some improvement. After all, the first step in solving a problem is recognizing there is one.
To most owners, their business is like a child of theirs, and they find it hard to admit there are any flaws with it. Nobody likes to hear that their kid is ugly, as they say. However, burying your head in the sand and denying the existence of any problem is an immature way to conduct business, and one that can cost you a significant amount of money when the time comes to sell it.
Keeping Your Eye On The Value Drivers
It is essential to know the value drivers of your business and to identify factors that could lead to an increase in value; any shortcomings concerning such factors should be addressed well in advance. It is important to closely inspect areas such as your finances, organizational structures, customer and supplier contracts, information systems, insurance coverage, environmental matters, as well as human resource issues, including employment agreements and benefits.
All of these areas should be evaluated with sellability in mind, not just with a mindset of keeping the business afloat. You would be surprised to find out how many of your business’ operations and departments could do with a little help to make it more attractive for potential buyers.
It is important not to bring your ego into play. Running a business is a complex exercise, and mistakes are bound to happen. The trick is to identify a mistake and take steps to overturn its impact on the value and productivity of your business. When thinking about selling your business, a comprehensive pre-sale check-up a couple of years before the sale can help you identify any potential shortcomings, and provide you with the opportunity to mend any issues. A financial and legal due diligence process can prepare you to tackle the complexities of the sales process, and empower you to address buyer’s skepticism, drawn out analyses, as well as intense negotiations.
Constantly Evaluating Your Situation
A proper evaluation of the business’ state of affairs can allow you to make some key tweaks in the structure and operations of your business. These simple alterations can make all the difference in the sales event by reducing time to sell, increasing the valuation, and aligning your business with an ideal buyer’s expectation. It is important that you look into matters such as the extent to which your business depends on you, tenure and loyalty of the people on your executive team, the diversity of your customer base, dependable vendors and suppliers as well as the projected revenue and growth opportunities. You should be prepared to take steps to improve any areas that are lagging.
The fact of the matter is that a qualified buyer will look for certain aspects that signal that the business is worth buying. Refusing to take an honest look into all aspects of the business can increase the likelihood of experiencing a rude awakening when at the negotiation table. Identifying the aspects of your business that need improvement beforehand provides you with enough time to remedy any shortcomings. A comprehensive evaluation of your business offers you a true picture of the strengths and weaknesses of your business, which affords you the luxury of marketing the business accordingly.
When selling, it is important to highlight the aspects of your business that shine brighter than others, while honestly representing the overall state of your business. Owning your flaws and making them your biggest selling points is also a strategy that may work. For example, if marketing has been your Achilles’ heel, make the buyers see that there is a great room for improvement and thus untapped revenue-generating potential. Properly evaluating your business to identify its flaws is the first step, whether you are looking to increase the value of your business by eradicating its flaws and mistakes, or looking for creative ways to market and sell your business.
Overconfidence regarding the value and sellability of your business can be detrimental to your sales prospects. If you fail to pinpoint and address the problem areas of your business, you may risk your chances of attracting the right kind of buyers and closing a financially lucrative transaction. Issues related to your employees, operations, intellectual property, liabilities, legal matters, as well as revenue generation capabilities can be consequential. A qualified team of experts you can rely on will be able to offer you advice surrounding these potential strengths and pitfalls, and will help keep your eyes on the goal so that these do not negatively affect the sale of the business.