The top five myths about selling a business

Venture Corporate Finance

As we’ve worked with hundreds of buyers and sellers over the past 15 years, there are several commonalities among business owners. Myths, if you will, about the upcoming process. As a part of our role is educating our clients and guiding them through this process, we thought we could take some time today to address the top five myths about selling a business that we hear most often.

 

Myth 1: My business is ready to be sold tomorrow

The first of the top five myths about selling a business is that a business can be sold with little to no preparation or investigation. While we live in a hot real estate market today with properties selling in little to no time, buying a business is much more complex. In fact, once a potential buyer starts looking your way, they are going to want to know a great deal about your operations before making an offer.

Although your company may be a hot commodity or experiencing record sales growth at the moment, that doesn’t automatically translate into a next day M&A. Beyond the investigations that need to happen first, there are other concerns to keep in mind including legal, financial, and of course the human element with your employees.

Myth 2: I can sell my business in a very short period of time

Following up on Myth 1, the second of the top five myths about selling a business is that, if not tomorrow, then your business can sell in a very short period of time.

We will give this one a partial truth checkmark only from the sense that “short period of time” is relative to other, more drawn-out processes (such as preparing for a wedding). Nevertheless, the reality is that the complete merger and acquisition process, from the start of Stage 1 with the Investigation all the way to the end of Stage 4 with Managing Due Diligence to Completion takes, at a minimum, five to six months.

Working with a corporate finance advisor is going to keep this process on track and help to minimize the overall time.

Myth 3: I should wait for a higher price

Any commodity is only worth what someone else is willing to pay for it. Remember the Tickle Me Elmo craze from the mid-‘90s? Those same purchases are worth nowhere near their original asking prices, but at the time they were.

Your brand is absolutely valuable and probably worth what you’re asking. However, be prepared to accept a lower offer than your initial expectations. This isn’t always the case, but statistically, buyers will see about 90% of their expected asking price once the process is completed. Can they go higher? Yes. But matching with the right buyer is often a trickier process than most sellers realize, and waiting for a higher price doesn’t mean you’ll necessarily get it.

Myth 4: The details don’t matter

The fourth of our top five myths about selling a business is that you can gloss over the details. The truth is that the M&A process is entirely dependent on transparency, cooperation, and a deep dive into all of your business’s operations. Don’t think any detail is too small, and work with your corporate finance advisor to put together a complete Sale Preparation Programme that can help ease your buyer’s potential concerns.

Myth 5: I can no longer be involved with my company

The final myth we want to address today is that, once you sell your business, you cannot work at or have any connection with the company you’ve built.

For some, this is a formal goodbye. For others, however, they simply no longer want to be responsible for the day-to-day operations or financials of their firm. They still very much want to help the company grow.

Here is where the negotiation of the Heads of Terms document can help. Your corporate finance advisor can ensure that your continued involvement is included if that’s something you wish to see.

Don’t feel embarrassed if you believed any of these top five myths about selling a business

The reality is not everyone is going to know everything there is to know about the M&A process. For many of our clients, they’ll only go through this process once. They’ve built their small to medium-sized business from the ground up and are choosing to part ways with it for various reasons. Many of the behind-the-scenes aspects of selling a business are new to them, which is why we’re here to help.

An initial step to preparing your business for sale is to complete a Transaction Readiness Report. This can help prepare you for what lies ahead and unpack some of the early-stage details that will make this a successful endeavour for you. Click HERE to get your free report or contact us for more information.