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from IAG M&A Advisors

3 Mistakes to Avoid When Selling Your Business

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For proactive business owners, steering a company towards success and sustainable growth demands a combination of sharp skills, strategic foresight, and an in-depth understanding of market dynamics. Excelling at running your business is one thing; selling it, however, is another matter entirely. Selling your business is one of the most significant transactions you will ever manage, and it’s crucial to handle it flawlessly. Here, we explore three common pitfalls that many business owners encounter during the sale process and offer strategic advice on how to avoid these potentially costly errors.

 

Mistake 1: Lack of Preparation

 

One of the most significant mistakes business owners make is failing to prepare adequately for a sale, which often results in substantial value being overlooked. Effective preparation is more than making superficial adjustments; it involves a deep dive into your business through the perspective of a potential buyer. Engage with your advisory team to scrutinize every aspect of your company as a prospective buyer would, considering their expectations, business practices, and goals.

 

By preparing thoroughly, you can identify and rectify any issues before they are discovered by a buyer, who might use them as leverage to negotiate a lower price. Control the narrative by being proactive rather than reactive. Ensure your financials are robust and defensible, your intellectual property rights like patents and trademarks are up to date, and key personnel are secured with appropriate agreements. This level of diligence not only protects but also enhances your company’s value by presenting a well-organized, appealing package to potential buyers.

 

Mistake 2: Misjudging the Value of Your Company

 

Another common error is underestimating the actual value of the business. Many owners leave anywhere from 20% to 50% of their company’s potential value on the table. As the seller, it is your responsibility to clearly illustrate the future potential of your enterprise, allowing potential buyers to see the additive value your company brings. This involves having a thorough understanding of what your business is worth to a buyer, considering their economic outlook and the potential to further grow and improve the business’s market position.

 

Creating a competitive bidding environment is also crucial as buyers tend to pay more for deals they perceive as competitive. This strategy not only raises the final sale price but also empowers you to negotiate on favorable terms.

 

Mistake 3: Hastily Accepting an Enticing Initial Offer

 

Business owners are often approached with what seems to be a compelling offer from buyers eager to close a deal quickly. However, such decisions should not be rushed. Before accepting any offer, take a moment to consult with your advisory team. Assess why the buyer is interested in your business and consider if there could be other parties who would also find your business appealing.

 

A seemingly generous offer can be deceptive, potentially overshadowing better opportunities that could arise from a broader, competitive bidding process. By understanding the wider market interest in your business, you can better evaluate the quality of the offer and potentially encourage a bidding war, ensuring you secure the best possible deal.

 

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