6 errors entrepreneurs make when selling a business
The commitment and sacrifice it requires to become a successful entrepreneur is often understated. Whether you define entrepreneurial success as building a comfortable income for your family whilst enjoying flexibility and freedom, building a self-sustaining business that can be passed down, floating your business on the stock exchange, or selling your business for a tidy sum, the process will not be without significant challenges and personal development opportunities. That said, if you do succeed and decide to sell your business, you deserve to get the best price possible for it.
However, the fact of the matter is 80% of companies listed for sale don’t sell, despite the hard work and effort that entrepreneurs put into building them. The reasons why are solvable once you understand why most businesses aren’t sellable, but as ever knowledge is power. So here are the 6 mistakes every entrepreneur needs to avoid in order to sell their business successfully.
1. Believing that because that because your business is profitable it’s also sellable
This is not the case, why? Because you can have a highly profitable business that poses too much of a financial risk for any potential buyer to purchase. For example, all the value may be in the founder through personal relationships with clients and prospects, the founder may be heavily involved in the day to day running of the business to the point that they become a bottleneck. The key is to build a business that can function without you through a strong team, robust systems and processes and a sustainable business model.
2. Not thinking about selling the business early enough
It almost seems counterproductive to think about selling a business in the process of starting a business, right? But that’s my advice. Build the business to sell from the very beginning even if that is not the end goal because it will increase the value of your business in every way. That means thinking about your business from a buyer’s perspective at every stage of growth and asking questions like:
- Does this business still have good product market fit or is the opportunity we’re focusing on declining?
- Are we focused on the right products and revenue streams, not just the ones I’m personally excited about?
- Are we conducting customer and market research to ensure that the business meets customer needs now and in the future?
3. Building a business based on purpose and passion instead of market opportunity
Passion and purpose are great, but they are not enough to build a sellable business. Buyers don’t care about your passion and purpose they want to know that when you leave, the business will continue to be profitable. By all means build a business that is fulfilling, but if you want to sell, make sure that your business is built on a growing market opportunity not a declining one.
4. Expecting to sell without preparing to sell
Businesses don’t sell by accident; you have to prepare to sell and often that’s not a quick process. Ideally you want to start preparing a business at least 2 years before you want to sell. Our 6P Launch Framework™ provides a structure for preparation.
- Purpose – ensure that your business has good product market fit and your purpose is aligned to a strong market opportunity
- Product – refine your product mix and ensure that you are focused on the right products and services with the best revenue opportunity
- People – ensure that your leadership team is future focused and not overly fixed on what worked in the past
- Promotion – ensure that you have a strong brand and marketing engine that drives consistent leads
- Processes – ensure that your business has robust processes in place for every key function
- Profit – ensure that your business model is scalable and drives recurring revenue
5. Preparing the business to sell without preparing yourself to transition
Being an entrepreneur is as much a personal development journey as it is a business journey. It is impossible to grow a successful business without growing personally. Entrepreneurs often get much of their identity and personal satisfaction from their business, so when it’s gone it may feel like part of you is gone. It’s important to prepare for this transition and to extract yourself emotionally from the business and have a plan for what you want to do when the business is sold.
6. Not getting the right advice from the right experts
Invest in getting support from reputable advisers during the sale process. Avoid business brokers that just put details of your business on their website, give you an inflated valuation that may or not be rooted in facts and provide little support beyond that. Instead find experienced Merger and Acquisition specialists and business consultants who can provide an accurate valuation, help you prepare to sell and connect you with reputable buyers. It may cost you more, but the result will be that your business has a significantly higher chance of actually selling and for the best possible price.
About The Author
Katrina Douglas Founded The Launch Strategist in 2019. She built the business with one main goal in mind: to help CEOs and Directors achieve greater financial success and structure in their business.