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Selling a business can be a complex process that requires careful planning and execution. Unfortunately, mistakes during the business sale can lead to significant financial losses, legal complications and even the deal’s collapse. This article will discuss some common mistakes business owners should avoid when selling a business. This should ensure a fair valuation for your company following a reasonable negotiation period.
1. Failing to Prepare for the Sale
One of the most common mistakes that large, medium and small business owners make is failing to prepare their business for sale. A company that is unprepared for sale is less attractive to prospective buyers. Accordingly, sellers may obtain a substantially lower price.
Preparing a business for sale involves:
- tidying up your accounts;
- making sure your books are up-to-date; and
- ensuring your business is profitable.
Whilst selling your business can be time-consuming, paying attention to your core business during this time is essential. You also need to prepare the necessary documentation for disclosure, including financial statements, customer lists and legal contracts. The seller should also ensure that the business operates efficiently and is free of legal or financial issues.
2. Setting an Unrealistic Asking Price
Another mistake that sellers often need to correct is setting an unrealistic sale price. Sellers must remember that their business is only worth what someone is willing to pay. Overvaluing your business can scare away potential buyers and make selling harder.
It is vital to ensure that your business continues to run smoothly and generates good profit during the valuation process. Neglecting your core business can make it less attractive to buyers and reduce its value.
You should always do your research to determine a fair market value for your business and set an asking price that reflects its actual value.
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3. Failing to Disclose Information
Sellers have a legal obligation to disclose any information that may affect the value of the business or the buyer’s decision to purchase it.
Any failure to provide relevant information or documentation will be a red flag to a potential purchaser.
Therefore, you must provide sufficient information to allow prospective purchasers to complete their due diligence. If you have any concerns about the data being kept confidential, you can ask them to sign a confidentiality agreement (otherwise known as a non-disclosure agreement).
4. Not Seeking Professional Advice
Selling a business can be a complex process requiring expertise in accounting, law and taxation. As such, you must engage an expert who understands the subject and can advise you accordingly.
Sellers who attempt to sell their business without seeking professional advice are more likely to make mistakes and may fail to get the best price for their company. It is, therefore, essential to seek the advice of professionals with experience in selling businesses and can provide guidance on issues such as valuation, negotiation and contract finalisation.
5. Inflexible Negotiation Style
Negotiating the sale of a business can take time and effort, and it is essential to be firm yet open to compromise. Therefore, before starting negotiations, you should know what you want from the sale and what you are willing to compromise on.
One of the biggest mistakes in business sale scenarios is one party resolutely refusing to compromise without good reason. So naturally, you are likely to quickly determine that an individual who refuses to demonstrate flexibility is the wrong buyer for your company.
LegalVision’s Buying a Business: Guide to Negotiating Terms allows you to protect yourself by understanding which key terms to negotiate when buying a business.
Key Takeaways
Selling your UK business requires careful planning, preparation and execution. Therefore, it is important to approach the sale with a clear head and avoid common mistakes that can sabotage your efforts to get the best deal possible. Avoiding the above-mentioned common mistakes can help you obtain a fair price for your company and get a favourable deal.
If you need assistance ensuring positive steps towards a company sale, our experienced business sale lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
This is a different question because, for many business owners, the decision to sell is personal. So, for example, many owners choose to sell to take a break or move on to another project, whilst others will have purchased the company with an exit strategy in place.
You are likely to want to leave your company in good hands. In this way, any prospective purchaser with a history of successful business transactions and who negotiates fairly and reasonably is likely to present as the right buyer.
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