For many entrepreneurs, selling a business is a major decision. Given that many sell a business just once, it can be hard for even experienced businesspeople to understand the business sales arena and its established norms. Myths about selling a business, perhaps based on the evidence of one isolated transaction, are often voiced as general truths.
Make sure you don’t walk into traps by learning these seven common business sale myths.
1. I know the type of buyer I’m looking for
This could be ‘a clone of me’, a major player in your field, or someone with a large wallet and a string of companies. But why restrict your options? Someone else with good credentials, sound finances and new plans may be just the shot in the arm your business needs to move to the next level.
More generally, it can be reassuring to everyone if a change is largely cosmetic and it’s almost ‘business as usual’. But if maintaining your legacy and securing staff futures are your priorities, you may have to settle for a lower price to get such guarantees. That can be tough if cash is your key consideration. Remember a seller paying top dollar won’t often feel obliged to make any promises about what will happen to your business assets down the line. So it’s your call, but take care.
2. I can get a better price if I wait for X
‘The sale price will be higher after Brexit …’ Indeed, it might be. But the market could be saturated with business sellers wishing this to be so – which means prices could drop. Good timing is clearly one important issue if you want to optimise the sale outcome. However, anticipating market conditions is an inexact science.
What is usually more important is advice from business brokers who stay in touch with the business sales market over the long term. Yes, it would be foolish to ignore things like seasonal trends. However, professional marketers will advise you to develop a basket of features which will count in your favour rather than hoping to cash in if the timing goes well.
3. My business is different from others
Perhaps this may be true in some respects. But no business is entirely immune to the effect of market forces, for example. Buyers are savvy and cautious people. So, if your business really is like no other, who would bet on that remaining so once you’re gone?
Furthermore, the professional mindset of any buy-side due diligence team means they will assume all businesses have some weaker areas. So, their job is to find supporting evidence to create an alternative perspective which helps a prospective purchaser evaluate the true worth of what’s on offer.
Surely, it’s wiser to promote your company’s strengths (as generally defined and accepted by your industry) than to totally rely on a claim your business is ‘unique’.
4. The asking price is the cash I receive
This is rarely the case. Marketing professionals consider the asking price as – almost always – subject to a negotiation phase which arrives at a mutually satisfactory figure below the original quoted price. Recent data suggests many sellers settle for around 90pc of their asking price, with some sales falling below this level.
5. The buyer’s finance isn’t my problem
If true, you are fortunate indeed. However, the reality is that you will be ultra-keen to ensure a potential buyer can secure the financing required to close the sale. Given the chance, you will want to make the case showing your business will grow further under new leadership. Because that will reassure the prospective lender that loan repayments will be met. And if you are told that part-financing some of the sale price yourself is the only way to close the deal, you are sure to give that option serious consideration.
6. I can sell my business without help
You may have set up a staff buyout or arranged a sale through your own network. But it’s most likely that you will have to try many avenues to find a buyer. This is where the services of a well-connected professional business broker can offer valuable strategic advice. With such an expert promoting your business, your chances of selling for a good price are immediately increased.
7. I’ll be able to sell my business in a few weeks
Some companies sell almost overnight. But realistically, it can take months to attract an approved buyer and close the sale at a good price. Most professionals say this process can take from six to ten months.
Jo Thornley is head of Brand and Partnerships at Dynamis.
Guide to selling a business part 1: Why are you selling up?