Selling a business: 5 mistakes entrepreneurs should avoid
You’ve built a business from scratch, made it profitable and overcome a million and one obstacles along the way.
With the hard stuff done and the company in good health, your focus might naturally begin to turn to the last big decision you’ll make as an entrepreneur: when to sell and reap the rewards of your labour.
But, after putting so much into a company for so long, pulling this lever can be difficult.
Unfortunately, the process itself is often complicated and riven with potential pitfalls. But, with some careful planning and a little knowledge, you can ensure you get the exit you deserve after years of building.
Here are some of the most common mistakes to avoid, if you’re looking ahead to life beyond the business.
Mistake #1: Not building the right advisory team early enough
There’s no golden rule when it comes to timing the assembly of your advisory team, but “sooner rather than later” is a helpful mantra.
Giving yourself the time to think about who you need, and where your blind spots are will ensure you remain in control throughout.
Some key questions never change when tackling this crucial stage of the process: have the individuals you’re considering done this before? Have they worked in the same sector as your business, and do they have the knowledge and expertise to navigate challenges that are particular to your industry?
Above all, take the time to properly vet the people you plan to work with and make sure you’re comfortable with their approach. This is likely to be one of the biggest moments of your life as an entrepreneur, so it’s worth ensuring you fully trust the people you’re hiring to guide you and are confident in your ability to work together as you progress into the sale.
Mistake #2: Misjudging the value of your business
Approaching a sale might be the first time you’ve seen an outsider put a hard value on your business, and seeing a figure in black and white likely marks a significant milestone in your journey.
It’s important, though, not to get blinded (or blindsided) by the figure itself too quickly.
The first thing to do is to build a comprehensive strategy for each of the key areas of the business during and after the sale. This will help potential buyers see how the firm will continue to grow and build value after you’re gone.
Getting to the bottom of things can be difficult, so lean on your advisory team to help you get a sense of how other, similar firms, are valued in the market, and seek an expert third party valuation.
Numbers often change. A valuation can depend on the firm that is assessing it, how they’re measuring the component parts and what the current market climate is. Crucially, too, the figure you receive initially may not be what you receive on transaction, but being prepared in good time will enable you to get as close as possible to your firm’s true value, and what you should be ready to accept – or not – as you continue in the process.
Mistake #3: Not knowing how much you need from the sale
This is the figure that’s personal to you.
Aside from the valuation of the business, you also need to be clear about what you stand to gain personally from any eventual sale, and whether it gives you the scope to achieve your next big adventure.
This is an ideal moment to reflect on life after the business, and many entrepreneurs run the risk of feeling adrift if they leave their plans until after they have already exited.
Consider what it is you want to do, what it will likely cost to put in place, and don’t forget to consider important factors around the edges such as tax, the effects of inflation, family circumstances and safeguarding your future finances. Expert financial planners will be extremely useful here and can show you well in advance what you can achieve by being prepared ahead of time.
By doing this, you’ll know for sure what your minimum guidelines will be for a sale, and guarantee your hard-earned capital sustains you long into the future.
Mistake #4: Making the business too dependent on the founder
This is your company, and you built it from scratch. So, obviously you’re the firm’s most important person, right?
As surprising as it sounds, this can be a founder’s undoing when the time comes to say goodbye.
However instrumental you’ve been in the building, running and growth of your business, an eagle-eyed buyer will want to see that the firm and its component parts have long since taken on a trajectory of their own.
No doubt the business already works effectively, and your team has been driving forward bigger and better objectives for success. But, like your personal financial plan, this is an opportunity to map out the “who, what and how” of the company’s long-term future when you’re no longer around to oversee the details.
Ensuring the very best leadership team are in place now (if they aren’t already) will give buyers a meaningful indication that you’ve got a long-term plan, and this will therefore work in your favour when it comes to securing a top-tier valuation.
It is also an opportunity for you to start the often-difficult process of emotionally detaching yourself from the company you’ve worked so hard to create.
Mistake #5: Trying to time the sale perfectly
Everyone wants to maximise the perfect sale price – but waiting for that “perfect” moment might mean you stay waiting forever.
It’s impossible to perfectly time any market, and the same goes for timing your sale. There will be a whole host of reasons why a particular moment will be more or less optimal to achieving your aims, but this is a chance to take stock and ask yourself what you most want to achieve.
Is there a baseline figure that you’re after? Do you have the team in place to help you? What might you be able to realise in a year’s time that you wouldn’t be able to realise now? These might be more useful questions to tackle than trying to pin down that elusive perfect moment.
Business sale preparation checklist
Before taking your business to market, it is worth stepping back and asking whether both the company and your personal finances are ready for a potential sale. A buyer will look closely at the quality, reliability and transferability of the business. At the same time, you need to understand what the sale would mean for your own long-term financial position.
Here are some key areas to review before selling your business:
1. Understand the value of the business
A professional valuation can help you understand what your company may realistically be worth. This should take into account revenue, profitability, growth prospects, customer concentration, market conditions, intellectual property, management depth and the quality of your financial records.
2. Prepare your financial records
Clean, accurate and well-organised financial information can make a major difference during due diligence. Buyers will want confidence that the numbers they are reviewing are complete, consistent and reliable.
3. Reduce dependency on the founder
A business that relies too heavily on its founder can be harder to sell. Buyers usually want to see that leadership, client relationships, operations and decision-making can continue successfully after the owner steps away.
4. Build the right advisory team
Selling a business often requires input from corporate finance advisers, accountants, tax specialists, lawyers and wealth managers. Bringing the right experts together early can help you avoid rushed decisions and unexpected issues later in the process.
5. Know your personal financial number
Before entering negotiations, it is important to know how much you need from a sale to support your future lifestyle, family goals, investment plans and long-term financial security.
6. Plan for tax and liquidity
The headline sale price is not the same as the amount you personally keep. Tax, transaction costs, deferred payments, earn-outs and reinvestment requirements can all affect the final outcome.
7. Think about life after exit
Many entrepreneurs focus intensely on completing the sale, but spend less time considering what comes next. Planning ahead can help you make better decisions about investing the proceeds, supporting your family, philanthropy, future ventures or retirement.
What should entrepreneurs do after selling a business?
After selling a business, entrepreneurs often face a very different financial reality. Wealth that was previously tied up in the company may become liquid, creating new opportunities as well as new responsibilities.
The first step is usually to pause before making major decisions. A business sale can be emotional, and it may be tempting to invest quickly, make large purchases or commit to new ventures. Taking time to build a clear post-sale plan can help protect the proceeds and align them with your long-term goals.
Important areas to consider after a business sale include:
- How much cash to keep available
- How to invest the proceeds
- How to generate future income
- How to manage tax efficiently
- How to support family members
- Whether to start, buy or invest in another business
- How to preserve wealth over the long term
- Whether philanthropy or legacy planning should form part of the plan
For many entrepreneurs, the challenge after exit is no longer how to grow the business, but how to manage, protect and structure the wealth created by it.
How can Cadro help?
These simple steps are far from an exhaustive list, and there are likely to be many challenges along the way as you approach the sale of a business.
If you are considering selling your business, preparing early can make a significant difference.
Cadro helps entrepreneurs think beyond the transaction, from understanding their personal financial number to planning how sale proceeds can support long-term goals.
Speak to the Cadro team to start planning for life before, during and after a business exit.
FAQs about planning a business exit
How long does it take to sell a business?
The time it takes to sell a business can vary significantly depending on the size, complexity and attractiveness of the company. Some transactions can complete within months, while others may take much longer, especially where due diligence, negotiations, financing or regulatory issues are involved.
How do I know what my business is worth?
A business valuation usually considers factors such as revenue, profitability, growth potential, assets, market conditions, customer concentration, management strength and comparable transactions. A professional valuation can help provide a more realistic view before entering negotiations.
Why is exit planning important for entrepreneurs?
Exit planning helps entrepreneurs prepare both the business and their personal finances for a potential sale. It can improve the quality of the business, reduce risks for buyers, support better negotiations and help the owner understand what the sale means for their future wealth.
Who should help me when selling my business?
Entrepreneurs often work with a team of advisers when selling a business, including corporate finance advisers, accountants, tax specialists, lawyers and wealth planners. Each adviser plays a different role in helping prepare, negotiate and complete the transaction.
What should I do with the money after selling my business?
After selling a business, it is important to create a plan for the proceeds. This may include holding cash, investing for long-term growth, generating income, managing tax, supporting family members, planning for retirement or funding future business ventures.
