Selling your small business that you have likely dedicated your life to building can take a lot more time than planned. It is important that you do not rush any decisions and prepare for the sale in advance in order to get the best valuation for your business.
Below are some common mistakes that business owners often make when selling their business.
1. Not being prepared to sell
Typically it takes 6 months to sell a small business but can take up to two years.* It can be challenging to find the right buyer. This means that long term planning is essential when it comes to successfully selling your business. Keeping your records up to date, a financial plan, sales history and marketing plans will help you to prove the value of your business when you decide the time is right to sell.
At Four Wealth Management we offer a small business financial planning service which helps you to keep your business finances in order.
2. Asking too much for the business
Setting an unrealistic price for your business can be detrimental and mean that your business takes a very long time to sell as there will not be many enquiries. When pricing your business, you should get multiple independent valuations and take into account your industry, competitors and the economy. External economic factors may affect the price of your business and determine when you choose to sell.
On the other hand, some business owners are looking to cut ties with their business quickly and set the price too low meaning they miss out.
Once you have a good understanding of the value of your business, you may want to book a meeting with one of our financial advisers to get tax advice to ensure the sale is as tax-efficient as possible. Otherwise you could get a lot less than you were expecting for your business after tax and fee deductions.
Some buyers may want to understand how you came to the valuation, you should be prepared with materials that back up your asking price.
Over-negotiating on price is another mistake that many business owners make. This can be off putting to the buyer. Your opportunities to negotiate depends on how many potential buyers you have
3. Selling to the wrong person
The first offer you receive for your business may not be the best option.
Before spending time negotiating the finer details of the sale, you should make sure to run a credit check on your potential buyer to ensure that the sale could go through smoothly and you should ask for proof of the funds.
When selling a business, it is not all about money, most sellers want to see their business continue to thrive. You should make sure the buyer is someone that can take your business forward, engage with your existing clients and has a clear plan for the future.
You should aim to have multiple potential buyers rather than only negotiating with one buyer. This will create a more competitive environment and give you more leverage when it comes to negotiating the contract. Sales can fall through at any point which is why it is good to have more than one potential buyer.
Unless you need a quick sale for personal or financial reasons, you should not rush into selling your business without exploring all of your options to make sure you are getting the best price possible.
Create a bespoke financial plan for your business
Create a financial plan for your business to help you hopefully achieve the best value possible when you decide it is time to sell, contact us today on 0117 973 0500 to book.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
*Inc.com ‘How Long It Actually Takes to Sell a Small Business’, 2018