Fatal Mistakes Selling Your Business: How The Three (3) Pillar Formula Can Explain
UPDATED: September 08, 2019
As a business exit strategist, I have seen enough businesses fail, or fail to exit.
It is always the usual suspects that stopped buyers dead in their tracks.
There is so much confusion out there and conflicted information online that I created the Three (3) Pillar Triangle Formula To Exit - an elegantly simple explanation to gives clarity for business owners looking to sell their business and exit.
Here is the Three (3) Pillar Triangle Formula To Exit:
The 3 Pillars To Business Exit (Consult-model by Josh Foo)
- First Pillar: Create a Business That Buyers Want.
Create, package and present the business that make buyers compete for your business. Fix problems in the business that shun buyers away. Add sweeteners that makes it 'irresistible' to Buyers. Many businesses are advertised 'as is' on the market. No wonder there are no buyers interested.
- Second Pillar: Sales Message That Stands Out.
Be different. Create some noise and stand out. Write persuasive sales copy. Don't be a 'me-too' ad on website listings and newspaper. It doesn't work when thousands of listings 'look the same' from agencies and private sellers alike. Adopt the latest digital platform.
- Third Pillar: An Effective Sales Process
The process to sell a business can seemed complicated for those less familiar with the rules, regulations... and a little intricate oversight can land you in a lot of unnecessary problems. But if you drop the ball here, the buyer bolts. And you are back at square one. Typically, business brokers and other specialists can guide you in this process.
This sounds simple enough but for many sellers, it is the epiphany moment.
This is powerful because sellers can now see which pillars they are missing and understand why they have difficulties selling their businesses.
This helps business owners to avoid fatal mistakes that can kill their chances of ever selling. And also prevents owners dancing around the central problems or spending wasteful money on the wrong things such as more advertising, consulting fees, or broker agent fees.
Businesses Have An Expiry Date To Exit
As a business owner, one of the very first things you need to do is to identify and fix up the issues identified from the Three (3) Pillar Triangle Formula To Exit.
This is a priority because there is an expiry date to selling your business (a limited window of opportunity). If you don't seize the window or realize the expiry date, then you may be forced to give up involuntarily.
While your business remains unsold, you risk a million things going wrong:
- Health issues can destroy the business. A client had cancer and literally gave the business away.
- Competitors kills your turnover. A successful bakery abscond from the lease 12 months after a competitor opened next door. A Surry Hills cafe seen its turnover dropped 40% due to competition after the owner decided not to sell 12 months earlier.
- The landlord vaporize your business value. Landlord can kill your business in so many ways. A franchise cafe owner lost $700,000 he paid for the business after the landlord hike rent at the end of the lease (franchisor holds the head-lease, so there was nothing the owner could do with the negotiations)
- Key talent leaves your business. Yes, if you are over dependent on key employees, watch out! For example, a talented chef who resigns and the new chef isn't up to the job so the restaurant turnover declines. Now nobody wants to buy the business.
- Change in regulations. Council zoning for a new mall... a new tax... new restrictions...etc Alcohol restrictions in Sydney CBD killed the night scene along with local businesses.
- Major disruptions. Sydney's CBD light rail development has seen less human traffic and businesses on George St are not doing well. Many businesses are gone. It could take years before these businesses regain their value.
- Government Interference. A tax office audit or FairWork audit can destroy your business by putting your business account on a garnishee order, de-registering ABN number, issuing exorbitant fines and more. A client has no funds to buy inventory for his retail store because the bank has withdrawn his line-of-credit facility due to an ATO audit.
Or perhaps a divorce, a death in the family, business partner disputes or lawsuits, etc.
When you sell your business, you have to recognise that things can go wrong and have contingency plans in place.
I appreciate that it is not always easy or possible to have backup plans, other than accepting the worst-case scenario. Hence it is important to have an honest discussion with yourself. If things do go wrong, are you able to walk away from your business with nothing because there is nothing more you can do?
Some business owners are actually quite happy to walk away from or terminate the business without any compensation.
Others are terrified of not getting paid on their exit.
By understanding your own risk factors and tolerance, you can decide on the level of urgency to resolve the issues identified from the Three (3) Pillar Triangle Formula To Exit.
Josh Foo contributed to this article
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