This is the first in a two-part series covering common mistakes business owners make when selling their companies. In this month’s newsletter, we will address the traps many owners fall into when preparing their business for sale. Part two, coming next month, will focus on mistakes to avoid during the sale process.
1. Not Planning Ahead
Selling a business can take 9-12 months, but the preparation begins 2-3 years before you start. Seek advice from business brokers and industry consultants to learn about what you need to do to make your business most attractive. Make sure you are tracking the main key performance indicators. If applicable, determine what you need to gain from the sale in order to be able to fund your retirement.
2. Firing Key Employees
It’s tempting to try to find any way possible to cut costs in the years leading up to a sale, and eliminating an expensive employee may seem like an easy way to increase profits. Most buyers, however, will want to retain your key employees, making it crucial for you to keep them employed, focused, and happy.
3. Hiring Extra Employees
In contrast to the second tip, some owners think they should hire extra employees in order to ramp up sales. In many businesses, more salespeople yields more sales over the long term; in the first year, however, it usually costs the business money. Bringing on new employees in the final year before a sale can decrease profits and thus your company’s value.
4. Letting Sales Slip
Buyers don’t pay for potential. If sales decline, the buyer will see your company as a risky investment, not as an attractive growth opportunity. Don’t count on your ability to convince them how easy it will be to return to your best years – if it were so easy, the business would not have declined in the first place.
5. Waiting Too Long to Sell
Many people make the mistake of trying to time their sale date to coincide with their retirement. This will almost always backfire. First, if the buyer knows you need to sell, you lose a lot of leverage. Second, some buyers may wish to retain you as an employee after the sale, so if you will not consider this option you limit the number of interested buyers.