10 Pitfalls to Avoid When Selling Your Business

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Denise Barnes

Denise Barnes

More information can be found in Seller Beware – How Not To Sell Your Business by Denise Barnes is published by Biteback Publishing. Startups readers can get a copy for a discounted rate of £8.99 by visiting: www.politicos.co.uk/promotions and entering the code E.MILE at the checkout. You can visit Denise on twitter @denisebarnesuk or see denisebarneswriter.com.
Denise Barnes

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You can be sure of one thing – there’s an excellent chance that selling your business will be the most difficult, traumatic and emotional transaction you are ever likely to go through in your working life. However, with the right professionals to advise you, it can be incredibly exciting and liberating, as it usually brings about a complete life change for the business owner.

If your dream is anything like mine was, I was going to have fun after the sale was successfully completed. After all, like most business owners, I’d put in years of hard graft. But note the word ‘successfully’. That’s obviously every business owner’s aim, but there are dozens of pitfalls to watch out for along the way. Having gone through selling my own estate agency business unsuccessfully, i.e., to the wrong buyers, I would like to share a flavour of my experience with you and point out some pitfalls waiting to bite you along the way, and which could have terrible ‘after sale’ consequences.

 

  1. Selling your business privately. This can be a huge costly mistake. You won’t have the time, contacts, know where to advertise, or have a ready list of would-be purchasers who are looking for just your sort of business. Much wiser to employ the services of a business agent who has all the expertise, and as well as your accountant, can give you a reasoned assessment of the value of your business. If they’re good you won’t begrudge them their (quite substantial) fee.
  2. Selling if you are going through any emotional crisis. A divorce, house move, bereavement, illness in the family, can distort your judgement and take your eye off the ball. You need to be readily available at all times for meetings with your business agent and solicitor, as well as prospective purchasers, and if you’re in the throes of any of the upheavals above, you won’t be on top form to keep one step ahead.
  3. Accepting the first offer. No matter how tempting, don’t do it. In fact the more tempting it appears, the more you and your agent should scrutinize and analyse it. A higher offer may come in later, or an offer which doesn’t have any onerous terms and conditions, such as the remuneration being dependent upon the future performance of the business, or another buyer may have more relevant background to your business. Also, look out for any inclusion of premises you own and may not want to include in the asking price.
  4. Allowing the new buyers to change your name and logo (your intellectual property). It is essential to have this clause is written into the contract. If not, it gives the buyers freedom to choose an inappropriate name and your once-loyal customers will go elsewhere. This rule can only be broken if you receive all your money up front.
  5. Allowing the buyers or their solicitor to ‘cap’ your earnings if you are on a pay-out-to-turnover scheme. Solicitors often advise their clients (your buyers) to cap the turnover, thinking they are saving them money, but solicitors are not sales people. Why would you introduce customers to your old company after a certain turnover has been capped if there is no longer any financial incentive for you? You and your buyers would both be in a lose-lose situation.
  6. Having an informal agreement about your involvement in the business after the sale. It should be written into the contract how long you are remaining in the business, how much time you will give, how much contribution you will make, and what salary you will earn, probably calculated on a daily rate. It works both ways. The buyers need your help and you need to make sure they are competent to run it. It’s not unknown for the previous owner to be barred from his or her old company by inexperienced, and what turns out to be, arrogant buyers. The only time you can break this rule is if you have all the money up front.
  7. Getting too friendly with your buyers. It’s best to keep it on a professional basis as it’s easier to negotiate better terms and conditions prior to the sale if you stay business like. And avoid alcohol at all meetings! You’re allowed to bring out the bubbly only when you’ve exchanged!
  8. Not bothering to check that your agent has vetted any prospective buyers to find out their backgrounds, to confirm they are upright and honest characters, what kind of business they run or have experience of, and of course their financial status before you disclose your company name. This information is imperative before they sign a confidentiality agreement. After signing they will then be given access to your accounts, so you do have to be sure of a trust which often hasn’t had time to build.
  9. Not keeping notes on the transaction. Keep ALL documents, emails, reports, diaries, minutes of meetings, etc both before and after the sale in a file. You never know when these records might prove crucial for writing up a court statement if your payments are late or never materialise.
  10. Underestimating your gut instinct. It is actually your biggest weapon. Have your antennae up for any doubts, niggles or worries about not only your buyers but also the agent and the solicitor. If you feel uncomfortable in any way, act before it’s too late and CALL A HALT IN THE PROCEEDINGS.

 

There are a myriad other pitfalls that can put a sale in jeopardy or result in a weak contract.

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