Few business owners get everything right first time they sell a company. Common mistakes include setting unrealistic expectations around price or timescale, misjudging market appetite, or going it alone without advisors to provide professional support. Here’s our take on the most common pitfalls.
I’ll sell my business on my own
Who would learn to drive without an instructor, or complete their tax returns without expert knowledge? Quite a few it turns out, and it can be done in rare circumstances. Read a few books, watch YouTube, talk to colleagues and cobble together a solution. How hard can it be?
As with all complex issues – and M&As are necessarily multi-faceted – it’s not just what you know but also what you DON’T know that matters.
No one gets things right first time in an M&A, so why wouldn’t you use someone who has learned on the job for decades? Any money saved is likely to be spent on correcting wrong turns and clearing up after mistakes.
Not using an advisor is like climbing a mountain without an expert guide or proper equipment. You might make progress, but never as much – and you’ll be taking huge risks en route.
Using the wrong M&A advisor
Of course you need to choose the right business sale advisor.
If you choose to use someone who has not completed multiple M&As before, you are going to hit a lot of walls, barriers and objections.
When choosing an advisor, it’s also worth thinking beyond experience, fees and accolades and exploring whether they feel right for you and care enough about what you do.
Setting a minimum price
It’s normal. It’s natural. And it’s always a problem. By definition you cannot know the price until the valuation has been completed accurately.
It also falls short in reality: everyone pitches the figure too high. If you start with a number, rather than a search for value and rigour, you are almost certain to be disappointed.
Lacking evidence to back up claims
It’s tempting to talk up your sale value to maximise the price you can secure. This only works if backed by evidence. Without supporting data, it’s just a vague claim which will only end badly. The acquirer will lose trust and belief in your figures.
They will mitigate risks by loading the liabilities onto you, or just walk away and move onto a more viable target.
In any valid transaction, the truth will out eventually. Stay fair, honest and evidence-based and everything should proceed more smoothly.
Trying to sell your business to a competitor
The most obvious buyer is the person you know, who has always wanted or competed for your business – surely it makes sense to approach them first?
Wrong. It’s almost impossible to get a fair price from the first person you ask – especially if you know them well.
They will be in the perfect position to make an offer over an agreeable meal and bottle of wine, then – in the coming weeks of negotiation – that offer is repeatedly revised down as they discover unexpected ‘realities’ or even imaginary issues.
You end up confusing their affability and your shared history with fairness. You make unjustified allowances and discounts. And with no competitor bids to pitch against their diminishing offer, you end up backed into a corner. You take the deal or bale out – disappointment either way.
Selling your business when you don’t have to
Businesses are often put up for sale at the wrong time – usually due to deteriorating financial performance or personal issues, e.g. illness or divorce.
Trying to sell a business in a downturn is doubly hard, as there are more companies like you on the market, compounded with fewer buyers as acquisitions are put on hold to ride out the storm. This is less a case of selling for less than not exiting at all.
Forced company sales for personal reasons may seem unavoidable, but there are always alternatives to a full business exit. Consider bringing in a management team so you can step back.
Taking the first offer to acquire your business
As with the above case, it is tempting to accept an immediate offer, if only to avoid the time, hassle and emotional head-spinning that comes from a multi-bidder business sale.
It is highly unlikely that someone will pay over the odds without competitive pressure. Unless you have no choice, take your time.
A good M&A advisor will handle the stress of a protracted exit period, and create ‘auction conditions’ to free you up so you can explore all opportunities.
Misinterpreting business valuation metrics
Value depends on comparable metrics, for example recurring revenue, market share, customer churn, profit margins. However, a surprising proportion of business owners have limited understanding of how these work.
If you’ve hired a trusted M&A advisor, they are likely to persuade you that you are not being ripped off. If you do not, you’ll want to question everything. Take the time to find an advisor you trust and learn which KPIs affect value and saleability.
Try to rush through the sale of your business
In some cases, a business sale has to be completed within a set period, for commercial or personal reasons. When this is the case, you should make the reasons clear so that everyone understands the rules of the game being played.
In all other cases, why constrain yourself? Yes, move at speed, but only as fast as is necessary to get the job done properly.
Any M&A advisor worth their salt should be able to put processes in place to move forward efficiently – and be able to explain why timings are as stated. They will find the optimum speed and procedures to secure the best negotiating position and ultimate price.
Not making time to sell your business
In the run-up to exiting your business, it’s important to work ON your business not IN it.
If you are the owner-director of a vibrant business, you may be tempted to continue with day-to-day troubleshooting, and let your M&A advisor do most of the heavy lifting. While that’s fine in itself, you still need to be present and engaged.
Make yourself available and book out enough time to make the sale a business priority.
Talk without listening to your acquirer
The ideal M&A transaction is built on shared knowledge and understanding. Keep asking questions, both to determine how best to offer your business in a sale, but also to understand each bidder’s position, motivation, priorities, biases and needs.
The more you listen and less you talk, the more you will learn to avoid pitfalls and achieve your desired exit strategy.
Playing hardball in M&A negotiations
Very few of us are wholly dispassionate, objective people. We get upset and angry. Passion can be exercised productively, but overuse is always counterproductive.
We also tend to determine a position, then find it hard when our assumptions, figures, data and conclusions are challenged. Ultimatums get issued and positions become fixed. Anyone stating that “the deal’s off unless we get to £m or fail to do xyz” is likely to lose their suitor, alienate them or prevent compromises/solutions.
That’s why the temperament and experience of a good advisor is just as important as their capability and technical knowledge. By pouring oil on troubled waters, a good advisor can stop negotiations becoming waterlogged or sunk.
What to do next
Avoid these 12 tank traps and you’ll boost your chances of selling first time around at a value you are happy with – or better still delighted.
Start today with an informal chat with a business sale advisor like us – or someone as good. There’s no cost or obligation until you sign up with an M&A firm, and it really is good to talk!