Common Pitfalls to Avoid When Selling Your Business

One of the most important decisions in a business owner’s lifetime is the sale of their business. When marketing your business for sale, there are numerous factors that impact buyer interest, transaction structure, and valuation. From our 30+ years of transaction experience, here are five common pitfalls to avoid to ensure you achieve the very best possible deal and maximize value:

Potential buyers need to be comfortable that the business can continue to be successful post-transaction. The strength of the management team that will run the business post-closing is a key part of this. It’s critical to highlight the capabilities of all your key employees to potential buyers so they fully understand that there is a strong and capable team to continue growing the business. Ideally, buyers would have an opportunity for direct interaction with several key managers as part of their due diligence. Even if the founder is best able to address questions from potential buyers on the business, it is often advantageous to give other business leaders the opportunity to be part of the due diligence Q&A as an opportunity to showcase their strengths.

Pitfall #2: Not Highlighting Growth

Buyers keenly focus on the growth potential of any new investment – therefore it is important to emphasize any significant growth opportunities and ideally explain how tangible they are (vs. pie in the sky). However, many sellers do not spend enough time putting “meat on the bones” with proper explanations of growth opportunities and instead are more backward-looking, overly focusing on historical results. Ensure you clearly communicate your growth opportunities so that a buyer can factor these into their overall valuation.

Pitfall #3: Weak Market Positioning

It is critical to set your business apart from your competitors by highlighting your differentiators. What makes your business unique and gives it a clear edge over competitors? By properly articulating your competitive advantages, there will be more interest and a higher valuation. In particular, when there are many deals in the market, a buyer’s interest can wane if your business sounds too similar to other companies in the market.

Pitfall #4: Information Overload

Many of the buyers you approach will be evaluating numerous deals at the same time. As a result, you need to capture their attention quickly with your most compelling selling points and not bog them down with too much information in the initial stage of a deal. It is much better to share a very targeted amount of quality information that piques their interest, vs. a large amount of detailed information that risks the buyers getting “lost in the weeds”, especially at the initial stage of the process.

Pitfall #5: Lack of Quality Financial Data

All buyers will want to review detailed financial information as part of their diligence and to understand how you manage the business and measure key performance indicators. It is important that you can provide quality financial and operational data quickly during a process. It will indicate that they are buying a well-run operation and will also ensure the deal doesn’t stall so you can maintain competitive tension amongst buyers and keep momentum to close a transaction.

An Experienced M&A Advisor Helps You Achieve a Successful Close

Selling your business is a high-stakes game that you want to execute right the first time. It represents the culmination of decades, and often generations, of effort, business building, and the risks taken to build your business to what it is today, and an experienced M&A advisor can help you achieve your optimal outcome.

Capital West Partners is an experienced, completely independent M&A advisor with a comprehensive range of services to help business owners navigate a business sale and reach their next goal. With over 30 years of experience, we have an unmatched track record of successful transactions for Western Canadian business owners across a range of industries. We do not provide audit, tax, or lending services, so there is no risk of us being in a conflict situation with potential buyers who regularly seek these services. If you are considering an M&A transaction for your business or want to learn more about the process, please contact us.