Based on this experience, these are the mistakes that you need to avoid at all costs…
1. Responding to a direct approach.
What would you say to a homeowner who told you that they had agreed to sell their house to a member of the public who put a leaflet through their door?
This would not be the way to get the best price for a property and it is almost certainly not the way to get the best price for a business.
I have come across many cases of businesses being sold for far below their market value because the owner responded to a direct approach.
To avoid this happening to you, it is essential to compare offers from more than one prospective buyer before you make a decision.
2. Believing that the price you are initially offered is the price that you will receive.
The oldest trick in the book is for buyers to make a decent offer, then reduce it later. One major buyer of estate agency businesses has acquired a terrible reputation for doing this. They have been known to reduce the agreed price by 20% or even 30%, sometimes just a few days before completion is due.
This leaves sellers in a terrible position. Staff might have already been told about the sale and a last-minute change of heart will be deeply unsettling for them.
They will also end up with thousands of pounds in legal fees and nothing to show for it. But, if they accept the offer, they will spend the rest of their life thinking that they were cheated.
Before you accept an offer, you must research the reputation of the buyer to make sure that this does not happen to you.
3. Poor presentation.
Homeowners will not achieve the best price for their property if they use poor quality photos and details written with a leaky biro.
Likewise, business owners will not achieve the best price unless the numbers are properly presented. All too often, we are presented with a shoebox full of bits of paper and clients sometimes get quite cross when we insist on having all the relevant figures. However, we know from experience that this is essential.
The buyers will check all the numbers that they are given very carefully and if they find any discrepancies, their trust in the business will be undermined. The only way to ensure that the numbers are accurate is to cross-reference the bankings with the software system records, and the software with the management accounts or statutory accounts.
This must be done before the business goes onto the market.
5. Asking for too much money.
If a business is worth £500,000, there is absolutely no point quoting a guide price of £750,000. The buyers are not stupid and it takes them about ten minutes to analyse the details and put overpriced businesses in the bin.
Once they have rejected a business, it can be very difficult to get them to reconsider it later. The guide price needs to be accurate enough to get buyers to arrange a meeting.
Once the meetings have taken place, a proper competitive bidding process will ensure that the best price is achieved.
6. Accepting the highest offer without reading the small print.
An effective marketing campaign should produce several competing offers but the highest offer is not always the best one.
You also need to consider how much is paid upfront and how much is deferred. What are the terms of the deferment? Will the staff transfer? Is the premises included?
How experienced is the buyer? Will the buyer need to borrow any part of the purchase price? Does the buyer have a good reputation for completing transactions swiftly and smoothly at the price that was originally agreed?
7. Choosing the wrong solicitor.
You would not ask your dentist to fix your broken leg and you should not ask the nice solicitor who does all your conveyancing to handle the sale of your business.
A small group of less than a dozen firms of solicitors have dealt with the vast majority of all the letting sales that have happened in the last ten years. Things will usually go much more smoothly if you use an expert.
8. Underestimating the time necessary to deal with the due diligence process
The buyer will want to undertake comprehensive due diligence before they complete their purchase and this will be extremely time consuming to deal with.
Even for a small business it is likely to take at least 50 hours over and a six to 12-week period to provide all of the necessary information.
It can be very hard to do this if you have to do it on top of your day job and the best solution might be to book some time off in order to focus on this process.
9. Taking your foot off the gas too soon.
It is essential to continue running your business with absolute commitment until the day that the buyer’s cheque clears your bank account.
If the performance tails off before completion, the buyer might legitimately ask for a reduction in the purchase price.
If the sale should fall through, a drop-in performance will make it much harder to resell the business to an alternative buyer.
10. Putting off a sale for too long.
We talk to people on a regular basis who are planning to sell their business when the market improves or when they hit ‘X’ thousand pounds profit or when they have agreed a new lease or when it next snows on Christmas day.
It is easy to find excuses to delay a sale but it is important not to delay a sale for too long.
We regularly deal with probate sales and bankruptcies and with owners who are too ill to continue working, and it is hard to achieve the best price in such circumstances.
*Adam Walker is a management consultant, business transfer agent who has worked in the property sector for more than twenty-five years.