Following from my last blog where I discussed the three common problems practice owners create when selling their practice, I‘d like to continue this theme by sharing the three big mistakes made by practice owners that ultimately create these problems in the first place.
Firstly, let me state it’s easy to make mistakes. This is particularly relevant if you haven’t bought or sold a million dollar business before, that in the main is an intangible asset, which is the case for most practice owners. And while you may have experienced the sale of your home, often many practice owners I have worked with have not. In short, its lack of experience and often what you don’t know you don’t know, rather than act upon incorrectly, that creates the problems.
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Discover the 3 classic mistakes that cost owners thousands at sale time (and how you can avoid making them).
So while you may have sold your home as a high level transaction, it’s important to note that the process of selling your business will be quite different. The sale of a practice is rarely a six week campaign whereby the price is paid upfront and the vendor walks away with the cash. In our role as brokers we are fortunate to see both sides of a transaction and I can assure you there is always a portion of the purchase price at risk for the seller, often for a year or two, while the buyer has very little risk over the same period.
It’s therefore important for practice owners who sell to avoid the following common mistakes that could often cost thousands of dollars in the final sale value of the practice.
- Being inadequately prepared across three key areas: yourself, your business and the buyers
- A lack of intensive buyer engagement
- Poor transaction management process and tools
In my next blog I’ll examine how to avoid the first big mistake – inadequate preparation. What happens if you’re not well prepared? Firstly, your sale will take longer. Buyers will ask for information that you don’t have prepared which translates to additional time sourcing, preparing and presenting data. Secondly, buyers won’t know enough about your business and it will take longer for them to make a buying decision and an offer. And lastly, the absence of sufficient information can leave buyers with insufficient insight into your business and the perception of greater risk than they otherwise should have. In a nutshell, more risk means a lower price will be offered.
Conversely if you are well prepared you enhance the buyer’s perception of your asset. The more information buyers have access to and understand, the less risk they perceive. As risk goes down, perception of value and price goes up. The end result is that you are more likely to maximise your sale value, you‘ll sell in a shorter timeframe (less than six months as opposed to 1-2 years for many), and you’ll ultimately know what your business is worth.
A lack of Intensive Buyer Engagement
A lot of Practice owners who contact us commence their sale process with just one buyer. When we ask about their objectives for the transaction “Maximising Sale Value” is almost always one of the top two. If you plan to try and sell to just one party then it’s unlikely you will have any negotiating leverage and when the offer comes if it’s a long way off what you think the business is worth you have no other buyer to sell to.
Poor transaction management process and tools
Having poor transaction tools will lead to the same frustrations and often results, that attempting to do home handyman work does with the wrong tools – if you’re anything like me! Any task that you don’t have the right tools for stands a chance of being delivered in a sub optimal way.
The right process is about managing your risk during the negotiation and optimising your positioning with the buyers in regards to your objectives for the transaction.
While all three mistakes are common, inadequate preparation, in our experience, is the most common mistake and is the number one reason vendors fail to maximise sale value, reduce risk and complete a sale in less than six months. In my next blog I’ll examine further how to overcome inadequate preparation and what are key areas to focus your efforts.
Do these problems sound familiar and accurate?
Chris Wrightson. Founder and CEO at Centurion Market Makers, the industry experts in the sale, acquisition and management of financial planning firms. If you’re planning on selling your firm in 2017, we’d love you to call us for a confidential discussion, or continue browsing our website for more tips, tools and info on the steps to take when buying or selling your financial planning firm.
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