It is estimated that around 15% of UK business owners are looking to selling a business at any one time. While it is true that the economic downturn has affected the ability of potential sellers to find a buyer, it is also true that a good company will always sell.
However with as little as 1 in 10 business sales failing to make it to completion, what are the key mistakes that Sellers make when selling their business that result in aborted sales?
1.Failing to prepare
Ideally a business owner should have a clear exit strategy and begin preparing a business for sale up to three years in advance. In reality of course this rarely happens. Most sellers simply put their businesses on the market and await an offer before they start thinking about what happens next.
The result of this is that when a buyer begins to analyse the business it intends to buy (due diligence process) often matters come to light that can cause the buyer to lose confidence and offer a reduced purchase price. As a lot of time, money and resources will have already been spent by this stage, the Seller who often feels they have no option but to continue with the transaction but for a lesser sale price than anticipated. Worse still the issues that have arisen may cause the buyer to question what other nasty surprises are waiting and pull out of the deal altogether.
2. Not seeking the right help
Selling a business is a complicated process. Some Sellers mistakenly believe that it is ‘cost effective’ to try and undertake most or even the entire sale process themselves.
The impact can be extremely detrimental, and in reality is a false economy. A buyer will know if a Seller is not represented by a lawyer who is experienced in this field of work and sadly can use this to their advantage.
It is important to remember that just because your usual legal and accountancy providers are qualified professionals, buying and selling businesses is a specialist field and it may be necessary to appoint other advisors who have the necessary knowledge and expertise to understand the complexities of the deal and what it takes to get the deal over the line.
If a buyer follows the advice at points 1 and 2 above then the concerns over Confidentiality can be minimised. Confidentiality for a Seller is a major problem when selling a business. An experienced solicitor will not only ensure that a water tight confidentiality agreement is put into place, but will also guide you on what information you can provide and which information, being of a commercially sensitive nature, should be withheld until the deal has progressed to a point where completion is almost certain.
It is unfortunate that, without the right guidance, Sellers (who are keen to reassure and keep their buyer happy) often release information such as customer lists, supplier information and detailed financial information which is critical to their business operations. The result? If the buyer pulls out they have all the information they need to set up in competition to the business the seller was trying to sell to them.
This is a twofold issue for sellers. Delay in choosing the right time to sell, and delay once a buyer is found.
The best time to sell a business is when you don’t have to! Many sellers choose to delay putting their business on the market when times are good. However good turnover and profits are crucial to securing the best possible price for your company. Every company has a period where its performance “peaks” under its current owner and further investment or a transfer in ownership is required to take the business to the next level. Delay too long in making the decision to sell and you risk trying to sell your business on a downward turn, reducing the amount you can expect a buyer to pay.
Even once a buyer is found, it is critically important to any sale that you and your advisors take steps to prevent delay. It is estimated that at the beginning of a transaction 80% of sales will proceed to completion. This figure falls as low as 20% as time goes by. This is why it is important to head off any potential problematic issues which may cause a delay in the sale process.
5. Over negotiating when selling a business
Deals regularly fall through because one side feels cheated. Many sellers may have to work for the purchaser after completion, as a way of affecting a smooth hand over. So it is important, not only that the deal goes through, but that both parties feel they have got a deal that they can feel good about.
Sometimes over negotiation arises because parties have failed to bottom out the crux of the deal at the beginning of the transaction. This is why it is important to ensure you get professional help from the time you decide to sell your business.
Specialist transactional lawyers, like Staffordshire law firm ORJ Solicitors will be able to guide you through negotiations, helping you to understand what issues you can live with and helping you to fight on the matters that really count. Get in contact with us to find out more.