Common Mistakes When Selling a Business

Selling a business is a huge step, and many business owners spend years preparing for this moment. Whether it’s for retirement, health reasons, or simply cashing in on your investment, selling a business requires careful planning and execution.

But this isn’t just about finding a buyer and signing a contract — there are many common mistakes when selling a business that can affect both the sale price and the long-term future of your company.

To avoid these pitfalls, let’s explore some of the critical mistakes you should steer clear of when selling a business and how to ensure a smooth process.

Lack of Proper Preparation

Selling a business isn’t as simple as putting it on the market and waiting for offers to roll in. Adequate preparation can take 12 to 24 months, perhaps longer, depending on the size and complexity of your company.

During this time, you should focus on:

Compiling accurate financial statements and documentation.
Resolving any legal or regulatory issues.
Addressing risk.
Assessing the true value of your business.
Managing leasing or rental contracts.
Preparing for market analysis and due diligence.
Ensuring a smooth transition for staff and management.

Failing to address these tasks upfront can lead to delays, lower offers, or even a failed sale. Buyers want clarity, and anything that raises questions can drive them away or reduce their willingness to pay a premium.

Case Study: Client sells company for an estimated €100m in cash and shares.

Misjudging the Value of Your Business

One of the most common mistakes when selling a business is miscalculating its value. It’s natural to want top dollar after years of hard work, but the market may not align with your expectations. Business owners often overestimate value because they’re emotionally invested in their company. Others may overlook the true worth of their business, humbly declaring “we just do what we do” without realising just how special that is.

Consider factors like:

Current market conditions.
Comparable sales in your industry.
What makes your business unique.
Your company’s profitability and growth potential..

Also, beware of underreporting profits to reduce tax burdens—this can make your business look less profitable, thus lowering its perceived value. Get a professional valuation early in the process to set realistic expectations.

Limiting Your Pool of Buyers

Only a small percentage of businesses sell successfully, so limiting your pool of buyers is a critical mistake. While it might seem convenient to sell to a competitor or someone local, perhaps even someone you know, this could significantly reduce your chances of success.

Instead, consider broadening your horizons:

Explore national and even international buyers who may see strategic value in your business.
Don’t rely solely on family members or employees as potential buyers unless they’re financially qualified.

A wider search increases your chances of finding a buyer who can offer the price and terms you want.

Discover how BridgePoint Group can help maximise your business’s value before going to market.

Going It Alone Without Professional Help

Many business owners think they can handle the sale process on their own. While this is technically possible, the complexity of selling a business often requires professional support. Business brokers, financial advisors, and legal experts are vital in ensuring you don’t overlook important details.

Professional advisors can:

Identify potential buyers.
Manage buyer inquiries and negotiations.
Provide advice on strategy and tactics.
Make sure you truly understand the terms of any offers received.
Help you understand the tax implications of a sale.
Keep the process on track while you focus on running your business.

Yes, they charge a fee, sometimes a handsome fee, but their expertise often pays for itself by helping you secure a better deal and avoid costly mistakes.

READ: 10 Essential Steps Towards Selling Your Business

Taking a Hands-Off Approach

While you should involve professionals, staying engaged in the sales process is crucial. Some owners make the mistake of thinking that hiring a broker or advisor means they can step back entirely. Your involvement is still necessary for answering buyer questions, providing key insights, and making strategic decisions throughout the process.

Even with experts in place, you’re the one who knows your business best, and your input can make or break the sale.

Appearing Overeager to Sell

Negotiation is a delicate dance, and showing your hand too early can cost you. If you seem too eager to sell, buyers may become suspicious or assume you’re desperate, leading them to lowball their offers or back out entirely.

Avoid:

Being the first to mention a price during negotiations.
Showing impatience to close the deal (time can be your friend in negotiations – so this doesn’t mean not setting and sticking to realistic timelines).

Maintain a steady hand, take your time, and let the buyer come to you. This keeps you in a stronger negotiating position and can result in a better sale price, where price is one part of the overall attractiveness of a deal.

Telling Half Truths

At some point, buyers are taking a leap of faith. They are exchanging a heap of cold hard cash for a series of risky, future cash flows. So credibility and trust are very important to getting a deal across the line. Telling half truths, untruths or omitting the truth is a bad idea. They are usually exposed at some point in negotiations, or in due diligence. When trust is gone, so too is the prospect of a deal at a fair price.

Making It All About the Price

Price is undoubtedly an important factor but it is not the only thing that matters. Take the time to consider other factors such as:

The terms of any deferred payment.
The amount of consideration that is ‘at risk’ or subject to an ‘earn-out’.
The terms on which the at risk component will be deemed to have been ‘earned’.
Any requirement that ties you into the business for a period of time.
Any warranties being required.
Any clause regarding ‘normal working capital’.

Understanding how to compare multiple offers is key to ensuring you are making a fully informed decision.

Ignoring Post-Sale Planning

One final mistake often overlooked is failing to plan for life after the sale. Whether you’re retiring or moving on to your next venture, you’ll need to ensure you’re financially and emotionally prepared for the transition. Consider the tax implications, legal responsibilities, and any potential earn-out clauses that might affect your long-term financial stability. Consider what you will do with your time – how does it affect your identity, your concept of self-worth, your family who may be seeing a lot more of you than they have become accustomed to!

Final Thoughts on Selling a Business

Selling a business is a complex process, but by avoiding these common mistakes, you can help ensure a successful sale that meets your financial and personal goals. Start preparing early, get an accurate valuation, and don’t be afraid to seek professional guidance. Above all, remain involved and keep your options open to ensure the best possible outcome. Selling a business is a major life event, and with the right approach, you can avoid the pitfalls and maximise the value of your hard work.

Engaging with experienced advisers can help navigate this complex process, identify areas for improvement, and implement strategies to maximise the business’s value before going to market. If you stay on task and have the backing of a great advisory team, you can enjoy the process and be ready to start your after-business life. Contact one of our trusted business advisors if you’d like further information about selling your business.