In this series of articles, we are going over the top mistakes business owners make when they decide to sell their business.
Missed any parts? You can get up to speed on all of the articles published so far here:
- Part 1: Being The Key Employee
- Part 2: Lack of Preparation
- Part 3: Overvaluing Your Business
- Part 4: Selecting The Wrong Buyer
- Part 5: Waiting To Long To Sell
- Part 6: Selling Without Professional Advice
The process of selling is complicated enough without you making moves that may lead to failure. It is important to know what you are getting into at the onset, as there is no room for a learning curve when it comes to taking advantage of the right time to sell your business.
Understanding the potential difficulties and a determination to address the issues can help you secure a successful outcome; yet ignoring these pitfalls can kill your prospects of selling the business, or at the very least can wipe out the chances of getting the highest value possible for the business you’ve worked so hard to build.
Keeping away from the common mistakes business owners make when selling their business, can do you plenty of good, and therefore should be a focus of yours well before placing the business for sale.
Mistake 7: Talking To Only One Buyer
The seventh deadliest mistake is only talking with one buyer. Think about it. How do you measure the success of a sale? If your answer is the price a business is sold for, then you need to have more than one interested buyer, as nothing drives the price or value of a business up than multiple buyers fighting to acquire a business.
It is important to know the actual worth of your business. Most business owners highly overestimate the value, have unrealistic expectations, set an unusually high asking price, scare off the buyers, and then fail to sell their business or are forced to sell their business for much less than what they expected. Then there are others who fail to realize the strategic and financial potential their business holds, underestimate the value of their business and jump on to the first offer they get, halting their search for better offers.
Both strategies make little sense. It is important that you know the true value of your business and take measures to increase it. Market your business properly, actively look for potential buyers and make moves to keep multiple buyers in the loop. If you do not have several buyers lined up, then your chances of receiving the highest value and the most money for your business is greatly reduced. A healthy competition among strategically motivated and financially strong bidders is what you want when selling a business.
How Multiple Buyers Helps Your Business Value
When it comes to the valuation of your business, the old adage comes to mind: Beauty is in the eye of the beholder! And nothing increases the perception of value more than realizing other bidders are also interested in the same business. Multiple potential buyers vying for the same business allows bidders to take comfort in the fact that others also perceive the value of the business at the same levels. It also gives them a reassurance that if needed, they could sell the acquired business forward.
The seller may eventually end up getting more money than he expected at the start of the selling process. You should always look to create an open and competitive marketplace for your business. Bidder competition always leads to better rewards and more sensible terms of the deal. Contrastingly, when you place all of your apples in one basket, you leave yourself and your business vulnerable. You risk losing time and energy if you fail to go through the deal with your lonely buyer.
Your lack of confidence or motivation may drive you to proceed with one prospective buyer, without realizing the possibility that you may end up playing in the hands of that single buyer. Even if the buyer entices you with a great initial offer, in the absence of a competition, they may try to look for ways to pay you less money or force the deal on their own terms. If the buyer knows there is competition for the business, the buyer will be more willing to offer money or better terms.
More Buyers = More Flexibility
When you have more than one potential “suitor” for your business, you have more flexibility. You are in a position to leverage more beneficial terms of the deal. In addition to the money, you can choose the right buyer on the basis of considerations, like whether you want to sell for cash or shares, the amount of upfront cash you need, the timing of your exit, the associated warranties etc. With only one buyer, the balance of power is pretty much in their corner.
In addition to better price and terms of deals, the speed of the deal is also something that depends on the number of interested buyers. There are many case studies of successful deals, where the seller managed to convince the potential buyers that their competitors are more than eager to scoop the company, and this created urgency and a sense of competition among the prospective buyers. The seller managed to get his hands on a few viable deals and chose the one that made the most sense.
Multiple Buyers Can Speed Up The Process
The longer the sales deal takes to close, the more likely it is to fail. When there is only one buyer in the game, there is no urgency. Each minute detail is negotiated extensively and the chances of the buyer becoming hung up on smaller issues skyrocket. The deal may lose all of its momentum and derail. You are more likely to reach a quick deal if the buyer knows you have other options, and if they fail to take advantage of the situation someone else might.
It is important to do everything in your power to improve the attractiveness and feasibility of your business and to raise its market value. Finding multiple buyers for your business is one of them. Many studies suggest that just the act of creating an open marketplace for your business may increase the value of your business by 50%. Exiting a business can be an once-in-a-lifetime opportunity, and by making it attractive and placing it on the market, the bidding dynamics by itself can cause the final sales price to rise.
It is necessary to create an open market for your business; giving yourself a chance to sell your business for the highest price possible. A team of advisors with an excellent track record in selling businesses can precisely help generate the proper environment to give the seller plenty of options.
: : : : : : : : : : : : : : : : : :
If you haven’t done so, don’t forget to check out the other articles in our series: