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3 reasons why selling a business is not a breeze

3 reasons why selling a business is not a breeze
When it comes to selling property or even everyday goods, we are used to following an established process. However, the story is much more complex in the case of selling a company. The risks, financial and legal aspects, setting the selling price and finding a buyer are just some of the items on a long list that an owner selling their business has to face. This article discusses the three key topic that every owner selling their bussiness has to keep in mind.

1. Finding the value of the company (i.e. a selling price)

As a rule, there is a so-called emotional multiplier behind the seller's pricing. However, the buyer wants to see a significantly smaller number on the price tag. This does not mean that the best and fair price is the average of these extremes. If there is no difference of magnitude, agreement is always achievable.

There are many different methods for estimating the value of a company , ie setting the selling price. For example, it is very easy to take a company's profit for the last year and multiply it by four. However, no company operates in a vacuum, and there are many factors that affect the company's operations, including the market and economic situation, the company's field, legislation, demand, existing customers, competitors and much more. The complexity of finding the value of a company arises from all these aspects.

Before taking any steps towards selling a business, it would be wise to first consult with experts and have them evaluate the value of your business. Valuation is not just about finding out a potential sales number, it is also about what the value of a business consists of and what increases or decreases it. As a result, owners may, for example, give up selling a business or discover that the business is more valuable than they thought.

2. Discretion

Unwanted side effects can occur when starting to sell a company incompetently. One of the stumbling blocks is the spread of information that the owner is planning to sell. However, this may not have a positive effect on sales for the following reasons:

  • If you first bet on only one buyer who still withdraws from the deal, subsequent buyers may take advantage of this information. In particular, it means a significantly lower price that they are willing to pay. This situation usually arises in a narrow area or when the number of potential buyers is very limited for various reasons.
  • Company employees may become anxious and leave work due to uncertainty about the future. It is known that this is already a problem today, even if there are no plans to sell the company.
  • Competitors always try to turn such information to their advantage by spreading the the news to their customers. It will probably not benefit the business or its sale. The situation may become even sadder if competitors also start attracting employees of the company to be sold.
  • Customers and suppliers value the stability of their partners. If the information about the sale of the company reaches them through third parties, it can, in extreme cases, lead to the termination of the partnership.

3. Finding a buyer

The sale of a company cannot take place without a buyer, and finding one can be one of the most demanding steps in the whole process. Complexity is often caused by a seller trying to find a buyer in an inaccurately defined segment. The seller can also assume that the greatest value of his company is the ultra-modern assembly line. In practice, it may be more effective to focus on existing customer contracts instead.

An important moment in finding a buyer is also the presentation of the company for sale. This requires a professional compilation of the company's presentation, which contains all the important information of interest to the potential buyer. With the help of a consultant or advisor, the presentation can be delivered to potential buyers without disclosing the name of the company. More details can be revealed once a specific interest has arisen.

As mentioned, these are just some of the important things to look out for when selling a business. However, selling a business can be convenient and stress-free if you are well prepared and aware of the potential spoils.

Mati Maasik
Mati Maasik
mati.maasik@incorply.ee

If you need help arranging the sale of the company, contact us!

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