Selling a business is both a melancholy time to say goodbye to an old passion project, and also an exciting time to wave hello to new possibilities. You’ve achieved what you likely set out to achieve, and now it’s time to take your earnings and to start a new adventure!
But if you aren’t careful with the way you handle this final obstacle, you might risk coming away short-changed. That’s why you need to make sure you avoid these common mistakes at all costs when you sell your business. Here are some of the biggest ones and how you can avoid letting them affect you.
Using the Wrong Form of Valuation
There are many different forms of valuation, each of which can be used to put a number on the value of your company. Depending on which type of valuation you use, you will find that you can come out with some very different numbers.
For example, when using “earnings multiples,” you will calculate the value of your business based on how much you earn in a year (this annual figure will then be multiplied by 5-10 times). Alternatively though, the “entry cost” method will value a business based on how much it would cost someone to build a business just like yours from scratch at this point in time.
If you have a company that has yet to earn much profit (perhaps you only just started out), then using the latter method makes a lot more sense for obvious reasons. Think carefully about which method will genuinely describe the true value of your business.
Not Getting Your Documents In Order
If your accounts aren’t fully in order, then you should organize these before you come to sell your business. Make sure you know everything that came in and out of your business in the previous years, and that you have all documentation pertaining to intellectual property, legalities, etc.
This is important not only because it will help the process of handing over your business, but also because it will help you to more easily negotiate a great rate for your business. How can you sell for a great price when you don’t know what your business is worth?
Not Including Everything
There are many physical assets that you will likely sell when you sell your business, such as your place of work, any computer hardware, inventory, etc. But that is not what has the real value. Far more valuable are the intangibles, such as your brand recognition, your trust, your expertise etc. Make sure that you don’t overlook something that might have a lot of additional value. For example, a list of leads can be immensely valuable and shouldn’t be overlooked! Speak with brokerage firms for more advice on this front.
Keep in mind that another “asset” is yourself! You could negotiate staying on in an advisory role, which can help to sweeten the deal. This is especially valuable if you are central to the brand in some way.
Lack of Transparency
There is an argument to be made for not telling staff that you are selling right away. However, once you are certain that the transaction is going ahead, you should be as transparent as possible. This will give your employees time to plan and prepare, and it will mean it comes as less of a shock. Crucially, this will lead to better cooperation from your team, which will help to result in a much smoother sale.
Avoid these mistakes and your business sale will go far better and you should be able to bring that period of your life to a satisfactory conclusion.