A successful business sale starts years in advance, but unfortunately too many business owners leave it to the last minute or when they are too tired to continue and will take any amount just to “get out”.
It is the smart business owner that plans in advance that will get the best price for their business.
So what are some of the mistakes we see for people wanting to sell their business.
Mistake 1. As mentioned above the number 1 mistake is not planning in advance
Anyone wanting to buy your business will generally want want to see 3 years worth of financials and income tax returns (well at least they should if they are smart business owners). So it is important that the financials for those 3 years are “squeaky clean” for the buyer to make an assessment of what they are buying. In addition to this it can often take months (or even years) to find a buyer willing to pay the price you are asking.
Mistake 2. Having an unrealistic sale price
You have put years of blood sweat and tears into your business and you want to be rewarded for all your hard work. Unfortunately a buyer doesn’t care about how much time and effort you have put into your business. All they are concerned about is how much your business will generate moving forward.
Mistake 3. Taking too much “cash” in your business
Some businesses still take a lot of cash within their business in order to reduce their taxes (in fact some businesses take nothing but cash). That’s all good and well if you are trying to dodge the tax man, but don’t expect to be able to sell your business for what it’s worth when the time comes to sell. As the old saying goes… you can’t have your cake and eat it too.
Mistake 4: Incorrect structure of the sale
Selling your business with little or no money upfront and a long settlement contract may lead to you losing it all. Where possible, make sure you get the majority of the sale price upfront with a short term settlement for the balance. The purchaser of your business may not have the required skill or business acumen to run your business successfully when you are gone. If you do not receive 100% of the sale price upfront you are effectively lending the purchaser money, in effect acting as their bank. So ask yourself… would you normally lend money to this person and do they have the ability to repay it.
Mistake 5: Not having the right business advisors around you
Many people will try to sell their own business to save a few dollars (well actually thousands of dollars). In some instances this can be OK (particularly if you are only selling for a low sale price) but in other cases you will need advise from professionals. This will include a good business broker to find a buyer, a good lawyer to help structure your sale and prepare business sale agreements and a good accountant to give you advise on how to reduce any potential capital gains tax or GST liability.
So if you are thinking of selling your business either now or in a few years time please contact us to discuss how to avoid these mistakes.