Why accepting the highest bid for your business could be the most expensive mistake you make

When it comes to selling your business, a big headline number might feel exciting.

You’ve ploughed years of hard work and money into your firm and have big plans for the future (be they to retire or start a new venture), so surely, accepting the highest bid is a no-brainer?

Beware, the most impressive offers may come with hidden risks.

Of course, it’s essential to achieve a sale price you’re happy with, but focusing solely on the numbers could lead to costly mistakes and long-term regret.

Read on to find out why the best exits aren’t about price alone, but also alignment, structure and certainty.

A bigger number often comes with more strings

Although every sale is unique, in our experience, the higher the bid, the more complex the deal structure is likely to be.

It stands to reason that the more risk a buyer takes on, the more measures they’re likely to put in place to protect their interests.

These might include contingencies like lengthy earnouts and deferred payments. Or the buyer may want to tie part of your payout to the firm’s future performance – which cannot be guaranteed.

You might find such terms unduly restrictive, especially if you need the capital from your business to fund your next chapter.

Cultural fit matters

The highest bidder may not necessarily be the best cultural or strategic fit for your business.

If your team or valued clients feel alienated by the new owner, this could lead to:

• Employee dissatisfaction and increased staff turnover
• Operational disruption and loss of productivity
• Difficulties attracting top talent
• Damage to the company brand
• Increased client churn.

As a result, the business could lose value rapidly after the sale, which could harm your professional reputation and affect any contingent payments you’re waiting for.

It may be that a slightly lower offer, with simpler terms and cultural alignment, offers a better result.

Read more: Meet the passionate and driven financial planning consultant Gaynor Rigby and learn about her views on why company culture is essential for business success.

Higher bids may be used as a tactic to reduce the final sale price

Some buyers will reel you in with a too-good-to-be-true offer, only to slash their price after due diligence is complete.

At this point, you may be too deep into the sale to back out. So, your buyer has you over a barrel.

Remember, this works both ways. If, in your eagerness to seal the deal, you’ve assured your buyer that everything is fine and it isn’t, expect to see that headline number fall.

Focusing solely on the headline number could blind you to potential problems

You only sell your business once. Get it wrong and there’s no going back.

The highest bidder might boost your bank balance in the short term, but if they’re not the right fit, you might get tied up in a lengthy and ultimately unsuccessful sale.

What’s more, focusing solely on the sale figure could mean that you pass up a better-structured deal that is more aligned with your company’s values and your personal goals.

That’s why working with an experienced broker like us is so valuable.

Working with Melo could help you choose the right path to sale

Hopefully, you can see that there’s way more to a successful exit than attracting lucrative bids.

Sure, you’ll want to get the highest valuation for your business possible and we can help with that. But we can also:

• Be your partner throughout the process
• Help you identify your goals and prepare your business for sale
• Support you in choosing the best route to sale, be that an internal or external sale
• Use our extensive network of professionals, such as legal and tax experts, to assist your firm.

Remember, if you take the time to prepare for selling your business, you won’t have to chase buyers or feel pressured into snapping up a deal based solely on the headline number.

Buyers will be queuing up to bid on your firm, so you can take time to choose the right one.

Get in touch

If you’d like to find out more about how the Melo team can help you plan for a smooth and successful exit from your business, we’d love to hear from you.

Drop us an email at hello@melo.co.uk or call us on 0113 4656 111.