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Avoid These Costly Blunders: The Top Mistakes Business Owners Make When Selling Their Business

October 10, 2023

Selling a business can be a complex and daunting process, especially for entrepreneurs who have invested their time, money, and passion into building it from the ground up. Unfortunately, many business owners make costly mistakes when the times comes to sell their businesses, which can greatly impact the final sale price and overall success of the transaction.

In Woodbridge International’s 30 years experience selling businesses in the middle-market, we’ve seen it all… From failing to properly valuate the business, to neglecting to prepare all necessary financial records, to overlooking the importance of confidentiality, these blunders can significantly undermine a business owner’s negotiating power and ultimately lead to a subpar sale.

By understanding and avoiding these costly mistakes, business owners can ensure a smoother and more profitable transition when the day finally arrives that you say out loud: “I want to sell my business”.

So, whether you are a seasoned business owner looking to sell your company or a first-time entrepreneur preparing for an eventual exit strategy, here are the most common mistakes business owners make when selling their business. Plus our experience-based insights and actionable steps on how to avoid these common mistakes that can hinder the sale of your business.

Mistake 1 | Lack of Preparation: Not Getting the Business Ready for Sale

One of the biggest mistakes that business owners make when selling their business is failing to properly prepare it for sale. This can include a variety of factors, such as not having updated financial records, neglecting to fix any outstanding maintenance issues, or not having a clear plan for transitioning the business to new ownership (For more, check out this list of factors to consider when selling your business).

To avoid this mistake, it is crucial for business owners to start preparing for the sale well in advance. This may involve performing a thorough assessment of the business’s strengths and weaknesses, making any necessary improvements, ensuring that all financial records are up to date and organized and understanding whom potential buyers may be and how to effectively market your business to them.

By taking the time to properly prepare the business for sale, owners can significantly increase their chances of attracting serious buyers and achieving a higher sale price.

Mistake 2 | Overpricing: Setting an Unrealistic Asking Price

Another common mistake that business owners make when selling their business is overpricing it. Many owners have an emotional attachment to their business and may believe that it is worth more than it actually is. However, setting an unrealistic asking price can deter potential buyers and prolong the selling process.

To avoid this mistake, business owners should conduct a thorough business valuation of their business to determine its fair market value. This can be done by considering factors such as the business’s financial performance, industry trends, and comparable sales of similar businesses. Most importantly, business owners need to know how to calculate EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This is the gold standard potential buyers look at when considering whether to acquire a company, as the EBITDA financial metric provides a clear picture of a company’s financial health.

By setting a realistic and competitive asking price based on your company’s EBTIDA, business owners can attract more buyers and increase their chances of achieving a successful sale.

Top Tip: if you are unsure how to calculate your company’s EBITDA, contact us for a free business valuation.

Mistake 3 | Inadequate Marketing: Failing to Reach Potential Buyers Effectively

A huge part of the sales process that business owners often overlook is the importance of effective marketing when selling their company. Simply listing the business for sale and hoping for interested buyers is not enough. Without proper marketing, potential buyers may never even know that the business is for sale.

To avoid this mistake, business owners should develop a comprehensive marketing strategy to reach potential buyers. This can include listing the business on online marketplaces, engaging a business broker or seasoned M&A specialist (more on the difference between the two here), utilizing social media platforms, and networking within the industry. By actively promoting the sale of the business, owners can increase the visibility of their listing and attract a larger pool of qualified buyers.

Sound overwhelming? That’s because it is! Developing a marketing strategy and accruing a list of potential sellers to market your company to is a massive endeavor. That’s why smart business owners turn to experienced mergers and acquisitions specialists, which will do a full marketing campaign for them. Woodbridge International has a streamlined marketing approach, which includes a custom marketing video, social media and email marketing campaign for each client, which goes out to our database of 450 000+ strategic & financial buyers. Contact us for an obligation-free meeting to find out more.

Mistake 4 | Poor Financial Records: Not Having Accurate and Organized Financial Documentation

Accurate and organized financial documentation is crucial when selling a business, yet many owners neglect this aspect. Buyers want to see detailed financial records that provide a clear picture of the business’s performance and potential for growth. Without proper financial documentation, potential buyers may question the business’s financial health, leading to decreased interest and lower offers.

To avoid this mistake, business owners should ensure that all financial records are accurate, organized, and up to date. This includes maintaining detailed records of income, expenses, assets, liabilities, and tax filings. It may be helpful to engage the services of a qualified accountant or financial advisor to assist with this process. And/or, contract with a mergers and acquisitions specialist that can guide you on what financial documentation you need, and provide specialist support (such as tax practitioners and M&A legal experts) where needed.

By providing potential buyers with transparent and comprehensive financial records, business owners can instill confidence and maximize the value of their business sale.

Mistake 5 | Lack of Confidentiality: Breaching Confidentiality During the Selling Process

Maintaining confidentiality during the selling process is crucial to protect the business’s reputation, employee morale, and customer relationships. However, many business owners inadvertently breach confidentiality, causing potential harm to the business and jeopardizing the sale.

To avoid this mistake, business owners should implement strict confidentiality measures from the outset. This may include requiring potential buyers to sign non-disclosure agreements before sharing sensitive information, using code names or anonymous listings, and limiting the number of individuals involved in the selling process. For example, Woodbridge International has a strictly monitored and private marketing and sell-side engagement process, whereby only qualified buyers are able to access the company’s info after being fully vetted and signing an NDA. This process is overseen by M&A legal experts to ensure no confidentiality is breached throughout the process.

By prioritizing confidentiality, business owners can protect their interests and maintain the trust of stakeholders throughout the sale.

Mistake 6 | Ignoring Legal Considerations: Neglecting Legal Agreements and Contracts

Legal considerations are often overlooked by business owners when selling their business, but they can have significant implications for the sale process. Failing to address legal agreements, contracts, and potential liabilities can lead to complications and even legal disputes down the line.

To avoid this mistake, business owners should seek professional legal advice before initiating the selling process. This can help ensure that all necessary legal documents, such as sale agreements, non-compete agreements, and transfer of ownership contracts, are properly drafted and executed. Alternatively, if you contract a specialized M&A advisory firm, their team will include legal experts who will ensure all contracts and agreements are legally sound every step of the way.

By addressing legal considerations early on, business owners can minimize the risk of legal complications and facilitate a smoother sale.

Mistake 7 | Not Considering the Timing: Selling at the Wrong Time or During Unfavorable Market Conditions

Timing is everything when it comes to selling a business, yet many owners fail to consider this crucial factor. Selling at the wrong time or during unfavorable market conditions can significantly impact the sale price and the number of interested buyers.

To avoid this mistake, business owners should carefully evaluate market conditions and industry trends before deciding to sell. If possible, it may be beneficial to wait for a favorable economic climate or industry upswing. Additionally, owners should consider their own personal circumstances and readiness for transitioning out of the business. By strategically timing the sale, business owners can increase their chances of achieving a successful transaction.

Start out by following this quick guideline on whether now is a good time to sell your business or not.

Mistake 8 | Sole Focus on Price: Overlooking Other Important Factors in the Sale

While the sale price is undoubtedly an important consideration, business owners often make the mistake of solely focusing on price and overlooking other important factors. This can include the buyer’s qualifications, their plans for the business, and the potential impact on employees and customers.

To avoid this mistake, business owners should take a holistic approach to the sale process. This involves considering the compatibility between the buyer and the business, the buyer’s experience and track record, and their plans for the business’s future. Woodbridge International is a firm believer in finding not only the highest price for our clients, but the best-fit buyer. More on our underlying strategy of “More Buyers, More Bids, Higher Price, Better Fit” here.

Additionally, owners should consider the potential impact on employees and customers, as a smooth transition can help to maintain goodwill and business continuity. By considering all aspects of the sale, business owners can ensure a successful transition for all parties involved.

Why You Should Avoid These Mistakes to Maximize the Value of Your Business Sale

Selling a business is a significant undertaking, and avoiding the common mistakes discussed in this article can greatly impact the success of the sale.

By properly preparing the business for sale, setting a realistic asking price, implementing effective marketing strategies, maintaining accurate financial records, prioritizing confidentiality, addressing legal considerations, considering the timing, and taking a holistic approach to the sale, business owners can maximize the value of their business sale and achieve a smoother transition to new ownership.

So, whether you are a seasoned business owner or a first-time entrepreneur, it is crucial to be aware of these mistakes and take proactive steps to avoid them when the time comes to sell your beloved venture. You’ll thank us for this later!

Need more expert advice from M&A specialists? Contact us for an obligation-free appointment.