In times of recession, buyers usually appear looking for undervalued businesses, or companies they think they can get more out of than their current owner. On other occasions it’s the owner who decides to sell, aware that every month revenue is falling and costs are rising. Selling a business takes the right strategy to be successful, and in fact, not going about it properly can put both the sale and the company in serious danger.
The first thing a business owner should know is that confidentiality is key to closing the sale successfully. It’s common for an owner to fall into “sale spam”, thinking that the more people who know, the more likely the business is to sell. And yes, for some small shops that may be the case, especially when all we care about is selling the premises.
1. Confidentiality.
News that we’re selling our company can trigger very negative reactions among suppliers, creditors, customers and employees, because the sale could take months. During that time, our suppliers wouldn’t trust us enough to supply us on long payment terms, while our most competent workers may look for another job, unsure whether they’ll end up out on the street.
2. Put yourself in the hands of a professional in buying and selling companies.
Just as there are real estate agents, there are also business brokers, even if the role isn’t as well known. There are firms that specialise in putting buyers of companies in touch with sellers.
One of the biggest mistakes business owners make when selling is trying to do it themselves, since they could even get it wrong when presenting the business’s potential and its valuation. An intermediary can get more for your company, although at other times they may bring your “castles in the air” crashing down by telling you it will be hard to meet your expectations, because they think the company isn’t worth what you want for it.
Coming back to confidentiality, firms in this sector will know how to stir up interest in your company without revealing at first which company it is. They also usually prepare a confidentiality agreement if you want one (we certainly recommend it), so that both parties are obliged to keep the negotiation secret.
3. A separate phone number and email for buyers.
If you advertise the sale of your company online, both the phone number and the email address should be separate, because we don’t want our secretary to take the call or the buyer to see our company’s name in the email address.
4. Share information in stages and gradually.
Let’s not give prospective buyers everything until there’s genuine interest in buying or the sale is well advanced. Don’t share patents, trade secrets or customer lists, because the buyer could back out and use that information to destroy you completely, especially by talking to your customers and telling them that the company currently selling to them is going to close. It’s very dangerous.
5. Choose a few trusted employees.
At some point, the buyer may want to meet some of your workers, the team that makes up the company. Choose a few trusted employees who will keep it secret. Even so, by this stage, as a general rule, you should know that employees will talk. One of them will tell his wife or a trusted colleague, with the usual “but don’t say anything”, and before long it will be an open secret in the company.
6. Avoid the most common mistakes made when selling a company.
Some owners are very meticulous when it comes to preparing the sale of their business; in fact, doing it properly takes time. The usual mistakes would be, first of all:
- Starting the sale with the wrong expectations: many sellers believe the company is worth more than its real market value, and are then surprised when they have to sell quickly and at a much lower price.
- Deciding to sell at the wrong time: the truth is that a company should be sold when it’s doing well, not when it’s doing badly. It’s hard to pick the right moment, especially once things are going badly. If our company’s finances are a mess, we could be forced to sell it below its real market value.
- Showing desperation: desperation is the worst enemy of a sale, because it makes it very easy for the buyer to squeeze us on price and get the company for less than it’s worth. Good negotiators sniff this kind of thing out very easily, and they know that a desperate person will sell sooner or later if they dig in at a ridiculous price and the seller receives no other offers for a while.
The truth is that most of the mistakes made when selling a company can be solved by putting ourselves in the hands of an intermediary. I would also warn, though, that some intermediaries have been working with the same clients for years, large companies looking for bargains, and in the negotiation they’ll always look out for their regular clients: they’re only going to sell your company once, while their buyers will keep buying in the future.
Even so, if what you want is to sell an established business or company, rather than just a commercial premises, it’s advisable not to go it alone.
Further reading
- 10 steps to increase a business’s sales
- 10 commandments for failing in business
- Marcus Lemonis: a millionaire who does business on a handshake alone
Featured image: juantiagues, CC BY-SA 2.0, via Flickr.
