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Receiving an offer from someone who is interested in buying your business is an exciting time and a great accomplishment for any business owner…
However, it is important that you don’t get caught up in all the excitement. Make sure you think clearly and strategically about the upcoming sales process so that you can achieve the best possible outcome. Here are some common mistakes to avoid when someone offers to buy your business:
Mistake 1: Rushing to accept the first offer you receive
After working tirelessly to build your business and then deciding to sell, there is no better feeling than when you receive your very first offer. It’s good news, as someone else has recognised the value and potential of your business. While taking the first offer you receive might be tempting, there is a good reason to take a step back and practice some strategic patience. Strategic patience allows you the time and space to give yourself enough time to stop and think before making your next move. It is important to consider who else might be interested in your business and what value it might have to them. Give yourself the time to play the competitive tension card, that little bit of negotiation magic which happens when you have two or more serious buyers interested in acquiring your business. If you are looking for a quick sale, strategic patience is not your friend, as you will start the process with an immediate negotiation disadvantage, and it will take some effort to climb that hill and negotiate from a position of strength. If you prepare and plan early for your business exit you are unlikely to need to seek a quick sale, which leaves you at the mercy of bargain hunters. You will need good support and a proven marketing process to give you the confidence to either take the opportunity to negotiate or hold out for a few comparable offers. Never be afraid to walk away from a negotiation, as this will allow you greater control during the process and directly increase your chances of securing the best deal for your business.
Mistake 2: Unrealistic Price Expectations
You might think that your business is worth more than what your prospective buyers are offering (and you might be correct). However, that doesn’t change the fact that the price is dependent on a number of factors, including market willingness, industry strength, financial performance, and much more. Pricing a business too high can be off-putting to buyers and result in the company receiving very few offers or not being sold at all. That is why it is important from the start to have realistic price expectations for your business. One way to achieve this is to have your business valued and appraised by a business sales or M&A professional, who will be able to advise you on the true value of your business so that you are not selling for under of over its value. However, always remember that any valuation should be the starting point of a negotiation, not the finish line. It’s the competitive tension between more than one buyer that increases any sale price, not a valuation. A well-executed offer-based strategy will avoid creating a ‘price ceiling’ and works best when you are looking for a strategic business buyer rather than a financially-motivated buyer.
Mistake 3: Doing it alone
While it might appear tempting to avoid the fees of an M&A professional or business broker and negotiate the sale of your business on your own, you must recognise that, in most cases, this is a false economy. Firstly, it takes much time and effort to professionally prepare and market a business for sale. This is time and effort that’s probably better spent on concentrating on what you do best, which is working on your business so that it looks great and performs at its best. Focus on finding your best strategy to deliver your best return on investment, i.e. identifying who can help you best maximise your final deal value and how they can achieve this. All business owners know how to negotiate, some just do it better with the back-up and support of an experienced adviser/dealmaker. Why risk so much to try and save a little.
The benefits of bringing a business sale professional onboard vastly outweigh the additional costs. For example, a business sale professional will be able to set up competition and ultimately draw a higher price for your business by tapping into their network of investors looking to buy a business. Also, a business sale professional will act as a buffer between you and the buyer, which is an important asset to have on your side during the negotiation process. They should also have seen it all before after being involved in countless sales, and know how to deal with every tricky negotiation tactic that might get thrown your way.