In the words of late American TV host Sam Levenson: "You must learn from the mistakes of others. You can't possibly live long enough to make them all yourself."
When it comes to selling businesses the biggest mistakes have, hopefully, all been made. In the grand tradition of learning from the failures of others, what business-selling mistakes do we need to avoid?
Don't overestimate your ability to handle the sale yourself
Selling a business isn't like selling a product or service. If you want to maximise value, minimise stress and ensure the best chance of success, it's best to consult with an expert before you go to market.
If you aren't using professional assistance it's easy to make mistakes that impact on price or scare buyers away. A vendor-created sales memorandum is a dead giveaway; buyers will know there's no broker involved and a few zero in on such listings to exploit the vendor's inexperience.
The lack of an intermediary to provide the usual confidentiality buffer could also prove costly as described below. Bear in mind also that some investors don't want to deal directly with vendors because their emotions and personal attachments to the business get in the way.
Don't tell the wrong people that the business is for sale
Should management, staff, customers or competitors discover your intention to sell, it could spell disaster for the business. If your sales have suddenly tanked, your employees are rushing to use up their annual leave or suppliers have reduced your credit, the cat's probably out of the bag!
Many investors view non-private listings as damaging to the business and steer clear.
Don't underestimate the time and effort involved
Selling a business usually demands more time than vendors realise. Whether because of onerous buyer requests or deals falling through and requiring the vendor to start afresh with different buyers, selling your business can become an all-consuming project.
It's not unknown for owner-managers to get so distracted that the business suffers.
Should buyers smell a vulnerability they'll delay closing and hold out for the next quarter's financial figures. They know that a drop in performance can be used as leverage to re-negotiate the price downwards.
Don't have unrealistic price expectations
The vendors least likely to sell are those who've valued the business based on what they've personally invested, what they'd like to retire on or the ‘jackpot valuation’ their broker used to persuade them to sign his contract. Get multiple valuations from brokers as well as other professionals with no vested interest in talking up your expectations.
Don't emphasise your own importance
Vendors often make the mistake of attributing business success to their personal efforts, their unique skills or their contacts in the industry. No buyer wants to pay the business’s biggest asset to go away.
The larger the business’s reliance on a particular individual, the greater the risk buyers perceive in the investment. And greater risk for them translates to a lower price for you.
Don't start the process until you're ready
It's not just accounts and records that you need to get straight. Buyers will want to examine the most mundane of things.
They'll ask for copies of employee contracts, they'll question stock valuations, they'll go through VAT records the way a tax inspector would. If you have a competent business broker or other adviser assisting you, they will prepare you for this due diligence well before you actually go to market.
Don't take shortcuts with legal documentation
This isn't the occasion for rewording a draft you got off the internet. Don't do it with the NDA, don't do it with the ‘letter of intent’ and certainly don't do it with the final purchase and sale agreement.
This is particularly important if there's any seller note, earn-out or credit element involved, or warranties and indemnities that you've extended to the buyer. Use a lawyer specialised in business disposal transactions, not your average high street solicitor.
Don't place too much trust in future payments
Investors often want to construct the deal to minimise their cash outlay when the business is transferred.
They might offer a higher price on paper in exchange for part of the payment being deferred. They might offer profit sharing in exchange for you taking a lower cash component on the day of completion.
They'll make all manner of concessions in order to reduce the upfront payment.
But beware that any promises of future payment can be reneged on (unless backed by rock-solid security). Law courts and lawyers can't get your money from a company that has been run into the ground.
Don't forget that HMRC will want a big cut
Keep an eye on liquidity. The broker's commission on the entire deal value will be payable on completion, as will HMRC's pound of flesh. Any arrangement with your buyer that doesn't leave you with the necessary liquidity to meet these bills could be more than a tad inconvenient
After more than 30 years' buying and selling businesses, Clinton Lee now advises other small-business owners on valuing and selling their business.