10 Mistakes When Selling Your Business
Selling a business is a complicated and time draining en devour, especially if you do not prepare prior to attempting to sell. Only 10% of businesses ever sell in Canada and the lack of pre- work is a major reason why in my opinion.
I talk to many buyers and they all basically say the same thing, the seller has no idea what he or she is doing the they pulled the price out of a magician's hat!
Here are just a few of the major mistakes sellers make. Brokers/realtors are not much better, they do little prep helping the owner get his/her business ready- they list it and hope they make a commission.
1. Not ensuring there are systems and processes in an operations manual. How is a new buyer supposed to run a business without A CRM software like Keap, proper bookkeeping software, marketing software etc. What database are you and your salespeople using to keep on top of clients and leads? I recommend Touchstone which is an online operations manual. Can the business run without the owner?
2. Slowing down prior to selling. Deciding to sell when the business is on a downward trend. This simply tells a buyer it is a burnout sale and the seller has not built the business with the end in mind. Look at it from the buyer's mind - do you want to buy a business with declining revenues, less employees etc?
3. Continuing to take cash sales. If this is a significant enough amount of revenue, show the cash sales on the books. Yes you may have to pay taxes on the amount but you will get it back 3 or 4 times when you do sell the business. Most business are sold at a multiple of EBITA or SDE. Property. Is there property for sale as well. The financials have to show this separately as a purchase decision on this is entirely different. I like to keep the sale of the business separate from the realty.
4. Ensuring you are measuring at least a few key metrics. I like to ensure the lead generation and lead conversion numbers are being tracked. This is money in the bank for the new owner. How many new target market leads generated, how many converted and sales per lead. Simple stuff. How is the website working (google analytics) advertising, email marketing to your database?
5. Normalizing the financials. Probably number 1.!!! Take out all personal expenses and one time expenses for the past 3-5 years to come up with an accurate earnings before interest, taxes & amortization. The other bottom line number for smaller businesses is SDE or Sellers Discretionary Earnings. Read some of my other articles for more details on these calculations.
6. Pricing the business accurately. Goes along with the above. Usually it is a multiple based on your industry as well as how effective your business is of the EBITA or SDE. If this is not done right, buyers shake their head and walk away.
7. Client contracts. If you do not have, can you ask for them or simply an email to your top ones confirming their commitment to you for the next year or two. Goes a long long way when selling as you can imagine.
8. Employee position agreements & Organization Chart. Get all of your employees to sign a simple, non-legal position agreement laying out their roles and duties. One of the biggest stumbling blocks at closing or in the LOI stage is if the new buyer terminates employees, who pays compensation??? Are employees staying on etc.
9. Strategic Plan to grow. Buyers want to see that you have put some ON time in the business and planned on where it could go. They buy the future. Write out how to double revenues in the next 3 years. Most sellers have the ideas already in their heads - just put it on paper and make it look good.
10. Sellers package. Prepare the offering, normalized financials, strategic plan, powerpoint deck and all the other details a buyer would need to make an informed decision on buying your business. Again, sellers as well as most brokers/realtors do little up front work to get the business looking like something someone wants to buy!
We wrote a book on selling with the above in it and much more. Feedback we have received has been very positive. For a copy, feel free to reach out.