The three mistakes that cost owners the most when they sell

Have you already decided what your business is worth, before anyone has offered to buy it?

Most owners have. The figure usually arrives early, from a friend's sale, a broker's lunch or the amount needed to retire, and it settles in like a fact.

That number is not the mistake on its own. The mistakes when selling a business are the decisions built on top of it. They are rarely dramatic, rarely made at the negotiating table, and nearly always visible from a long way off.

Owners who make them are not careless. They are busy, attached and sure the business speaks for itself.

The three mistakes when selling a business, and what to do instead

A sale runs on two clocks. Yours, set by age, energy and the figure in your head. The buyer's, set by your trading, your records and what they find. Every costly mistake comes from running the sale on the first clock while the buyer runs it on the second.

• Pricing on need. Holding out for the number you need rather than the number the business supports. A buyer prices the next few years of profit and the risk attached to it. Your retirement sum is not on their spreadsheet, and the multiple is the buyer's verdict, not yours. Get an independent view of value before you go to market, then decide whether to sell, wait or improve.
• Letting trading slip mid-sale. A sale takes months, and it eats the owner's attention. Sales soften, a key customer drifts, a manager leaves. The buyer sees it in the monthly figures and reprices. Hand the sale work to someone you trust to run it, so the business keeps running at full pace while it is being sold.
• Letting the buyer find the problems. A dispute, an expired lease, a contract in your personal name. Found by the buyer, each one becomes a reason to doubt everything else. I wrote about why your buyer will forgive bad news, not late news. Run your own due diligence first and put the problems on the table yourself.

The honest objection is cost. An independent valuation, help running the sale and a pre-sale review all cost money before any money arrives. Some owners spend it and sell for the price they would have got anyway.

That happens. The spend is still small next to the cost of one mistake, because each of these three tends to arrive late, when the buyer holds more of the cards. Avoided early, a mistake costs a fee. Discovered late, it costs a share of the price.

Yahoo: two of the three, eight years apart

On 1 February 2008, Microsoft offered to buy Yahoo for about $44.6 billion, or $31 a share. Yahoo's board said the offer undervalued the company. Microsoft signalled it would go to $33. Yahoo wanted more, and in May 2008 Steve Ballmer withdrew, writing that the economics Yahoo demanded did not make sense for Microsoft.

In July 2016, Yahoo agreed to sell its core internet business to Verizon for $4.83 billion. Then came the second mistake. In September and December 2016, Yahoo disclosed two data breaches, one covering about five hundred million accounts and another more than a billion. Both dated back years. Verizon cut its price by $350 million, and the deal closed on 13 June 2017 at about $4.48 billion.

The comparison is not exact. Verizon bought the operating business only. Yahoo's cash and its large shareholdings in two Asian internet companies went to a separate company, Altaba. Even so, the core business sold in 2017 for roughly a tenth of what Microsoft had offered for the whole of Yahoo in 2008.

It is tempting to file this under a famous company with bad luck in a fast market. Luck had little to do with either moment. In 2008, the board held out for a number that only the board believed in. In 2016, the buyer learned about the breaches after the price was agreed, and the price moved.

Neither was a negotiating error. Both were decided well before anyone sat down to negotiate.

Why I am recommending it

I work through these three before every sale.

Eighteen years. Five businesses built and sold. Across them, the costly mistakes were never the ones I lost sleep over in advance. They were the quiet ones: the number I had fixed in my head, the month I spent on the sale instead of the business, the small problem I assumed nobody would notice.

So before going to market I get an outside view of value, hand day-to-day running to someone else, and write down every problem a buyer could find.

It does not guarantee a price. It means the price is set by the business rather than by my own blind spots.

Do this before Tuesday

Write the number you think your business is worth at the top of a page. Underneath, write where that number came from.

If the answer is a feeling, a friend's sale or what you need to retire, book a call with an independent valuer or your accountant before Tuesday. The figure in your head is the first thing a buyer will test.