The grand plan for most entrepreneurs is a successful business sale – build a business; make it successful; and then sell it for high returns. Unfortunately, such business sales do not come as easy as it is said.
When selling a business, one tiny mistake can cost the business owner thousands of dollars, and compromise all the investment, resources and hard work. Such losses are likely to be greater for small businesses.
Fortunately, these inevitable pit falls, losses and disappointment can be easily avoided or reduced to minimal.
Avoid The Following 5 Mistakes For A Successful Sale Of Small Businesses:
1. Too long waiting time or No succession planning
This happens too often to many small business owners in Singapore – and such actions would cost them a golden opportunity.
Since the process of selling a small business takes about two to four years, the key to a successful sale is actually long-term planning.
The first step is regular and proper recording and updating of the small business’s financial matters. This means that the business’s history and sales portfolio are readily available anytime the perfect buyer shows up with a good offer.
Next is early planning for succession. Buyers need to be set up for success after the acquisition; and this takes time. So the sooner the business owner starts planning for succession, the higher the chances of achieving that success.
In Singapore, it’s common to ‘start thinking when things happen’. But a small business owner who has a proper strategy for the business sale would not appear desperate, and thus has a higher chance of fetching a higher price. Hence ‘don’t wait till the time is ripe’ – start thinking and planning now.
2. Using the wrong broker or consultant
Having the right consultant or broker to represent your business in a sales transaction is crucial to its success.
In Singapore, many business owners often take the first broker/consultant they meet because they want to ‘get it over and done with’. This is as the saying goes: ‘as long as the person is a professional, he/she is good enough for the job’.
But a successful business sale requires more than a ‘good enough’ quality of an expert – it needs the ‘most suitable and qualified’ one. Otherwise, the business owner will be in this for a loss – in money and time – in the long run. It is quite typical to see a small business owner waiting for six months, only to start all over as there were no results.
Based on past records, a good broker can provide a realistic approach and bring in leads within the first month. So it is crucial to take the time to choose the perfect broker who helps achieve realistic expected outcomes and determine the most appropriate direction for the sale.
3. Leaving all the marketing and promotion work to others
It is deadly to think that the broker does everything because, logically speaking, the business owner is the best person to promote the business.
No one is more passionate and driven, knowledgeable and experienced in the business and its industry as the business owner. So it is crucial to understand the limits of a broker’s role, and take over some of the responsibilities in promoting and marketing the business.
This means that the business owner can leverage on his/her past contacts or the customer base to get the word out and get leads in. With the broker’s leads, there will be a greater pool of candidates and hence a greater chance of finding the buyer with the best offer.
In Singapore, selling a retail business is tough because buyers are likely to think that the sale is an exit strategy for a failing business. Hence having a solid plan and strategy can help erase those fears and cross out any suspicions, and achieve a good successful sale. Just as the business had started with a strong plan, it can be sold with a strong plan too.
4. Not defending the business’s worth or value
It is always a dead end in a sale transaction when the selling price is too high or too low.
For a business that produces little or no profits, expecting a high selling price is considered having a bad business sense in the world of dollars and cents. Hence it is important to consider the standards of the marketplace, the industry and the economy when setting an expected selling price.
For businesses that are doing well, there have been cases of them being sold at prices lower than their worth. This happens especially when the business owners are critically ill or having a burned out; or they simply didn’t get the proper advice.
For such cases, it is good to seek advice from the experts – engage a broker or a consultant; and do the due diligence with their support. It is also helpful to do some research on compatible business sales before engaging the expert.
Of course, when a small business does not make profits and may do better with a going-out-of-business sale, then the business owner should take up the opportunity. This kind of sales can help make instant cash flow and a quick turnover.
Even so, there are many cases in Singapore where business owners miss such opportunities due to a loss of drive or energy; or simply, a refusal to lower their pride.
Hence it helps to not take things personal and bite on the most valuable opportunity. This, after all, is business.
5. Having the wrong buyer
Again, with the get-it-over-and-done-with mentality, or simply the intention of ‘I just want cash – fast’, many small business owners in Singapore accept the first offer they receive in a business sale.
Of course, that offer is often not the best one – and the consequences are dire in the long run.
Business sales will often turn bad when the buyers take over and the business starts to pale in performance. This may be due to new owners’ inadequate experience with the business or their personality, or their poor leadership skills – the list is not exhaustive.
A change in ownership tends to make even the most successful business vulnerable to disasters and unfortunate events; and it is possible that the new owner would one day go out of business, thus reducing all previous efforts to nothing.
Hence a business owner should evaluate all potential buyers and options for the best selection to sustain the business for a long run. A few good questions to ask are as follows:
- Is this buyer the best person to take over and run the business?
- Is the buyer able to connect with the business’s customers and market the business effectively?
Selling a business for just high returns, with no extended contract or little or no money in the long run, may lead a business owner to lose the business and all the years of hard work.
A successful business sale provides a tremendous opportunity for the business owner and the successor; and a successful sale happens only with an early in-depth planning.
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