A successful business exit is a significant achievement for an entrepreneur as it establishes precisely how much value you have built into your business. But as a serial entrepreneur and investor myself I have found that it is easy to make the same mistakes again and again. Therefore I have decided to list the top five mistakes I often see to help you be aware of them and hopefully avoid them when selling your business.
1. Not seeking advice early on
The likelihood of achieving a successful business sale is often decided long before you’ve made the decision to actually sell. Getting advice and building your knowledge and experience into your business so it can adapt to changes in your market and grow is critical to maximising your chance of a successful exit. Don’t make the mistake of underestimating how much preparation is needed. After all, you have invested a lot of time and energy in your business and seeing it undervalued or unsold because you didn’t prepare or seek the right advice would be devastating. CEOs and entrepreneurs often like to control everything, myself included, but when selling your business you should get advice from someone with experience of selling businesses.
Most entrepreneurs only sell their business once where the right advisors can help you navigate the minefield. One such problem is who to choose as potential buyers since competitors as potential buyers might simply be looking for inside information about your customers, pricing strategy, or key employees. Advisers might introduce the need for a deposit or at least proof of funds to help establish the intent of a potential buyer before they’re allowed to see commercially sensitive details. This also helps weed-out less serious buyers.
2. Taking your foot off the pedal
Selling a company is a marathon, not a sprint. Coca-Cola’s recent purchase of Costa for £3.9 billion may have happened in the lighting-fast time of less than two months but this kind of speed is a rarity. Buyers fall away, due diligence can take a long time, and during this hugely distracting and time consuming process you need to keep your eye on the ball and ensure the business’s financial situation does not deteriorate during the sale process. Even finding a buyer does not mean the business is sold so taking your foot off the pedal and allowing sales and profits to dip might cause the buyer to renegotiate the price or look for a way out.
3. Inadequate documentation
Due diligence will be carried out to verify your claims about the future potential that the buyer is buying. This will focus on documents you provide, normally in an online folder or a document room, where buyers and in particular their advisers will look for evidence of your claims, or rather where documents are incomplete. A lack of records can put off buyers or at least significantly reduce the value of your business since they will be the main focus of the due diligence. Basic documentation should include historical accounts and accounting files, financial reports, company secretarial records such as board and shareholder minutes, and registers of directors and shareholders. Employment records, insurances and compliance certificates will also be looked at. Proof of asset ownership and equipment maintenance logs will be inspected. Finance agreements and any long term service contracts should be provided. Intellectual property including registration of patents, trade marks and ownership of domain names is also important. Client and contract detais and marketing information are sensitive areas that buyers will want to see although this should be tightly controlled perhaps by ensuring inspection team doesn’t take copies. This list isn’t exhaustive but being able to produce records will go a long way to improving the vale of your business, and it shouldn’t be a burden since every well run business should already have them.
4. Not maintaining confidentiality
Telling others and not maintaining confidentiality when selling can cause damage to your business since everyone knows and changes the way they deal with the business. Clients can stop buying, suppliers worry and staff look for other jobs. Uncertainty gets in the way and everyone talks about it. It can be avoided by restricting ‘those in the know’, using sales agents and anonymising the initial information pack they use to solicit interest. Non-disclosure agreements with confidentiality and possibly non-solicitation clauses will also be necessary. If your business is part of a small market segment or close community this can be very difficult and needs to be thought through although a sale offers someone outside the community to buy in. Finally you will need a plan for what to do if the story does get out, in particular one for reassuring clients, staff and suppliers. As evidence it can work, Coca-Cola and Costa managed to keep their dealings secret and out of the news where the press would have been quick to announce the interest had they known about it.
5. Letting emotions get in the way
Whether it’s fear, excitement or overconfidence, emotions can play a big role in exit-planning decisions. As an owner you will almost certainly have feelings about the sale of your ‘baby’ but letting them spill out can get in the way of negotiations. It is common for owners to have second thoughts and change their minds, sometimes often. The reasons for the sale need to be understood and in some instances may be emotional rather than rational. Understanding your own state of mind and resolving to sell can help reinforce your decision and avoid letting your emotions get in the way. This is where a sales agent can really earn their fee since they are managing you while at the same time the sale process.
If you enjoyed this post, please click the thumbs up icon above and let me know!