Business Owner Info
Deciding to sell your business may be one of the most important decisions you'll ever make and probably the hardest. When business is good, your income sufficient, your work interesting and the future appears promising, you may ask yourself, "Why sell?" Some reasons may be retirement a decline in health, the desire for more free time, the problem of not having an heir, partner problems, or a decision to relocate.
THE BEST TIME TO SELL A BUSINESS
Simply stated, the only time a business can be sold for a favorable price that will enable a seller to realize the highest return on their investment of time, money, and goodwill, is when conditions surrounding the business are strong and the future is promising. When you sell your company, you are in a position to realize at least three important benefits. First, your sale will allow you to make a profit. Secondly, your sale converts the equity you presently hold in your company into cash. Cash in itself delivers a third benefit, namely, that you will be in position to pursue new and alternative opportunities in both your business and personal life.
Preparing your company for sale is almost as important as the sale itself!
The broker will most likely be extremely helpful to both the buyer and seller during the purchase and sale process.
DIFFICULTIES IN SELLING A BUSINESS WITHOUT A BROKER
Some business owners attempt to sell their businesses themselves, and they soon find that the sale of a business is prohibitively difficult to accomplish without a broker (or someone) acting as an intermediary for many of the following reasons:
- The seller often doesn't know how to properly value the business.
- The seller often doesn't know how to present the business in its best light from a buyer's perspective.
- The seller is usually unable to efficiently attract qualified buyers
to the business and at the same time maintain confidentiality that the business is for sale from employees, customers, and competitors.
- The seller is frequently unable to judge a buyer's seriousness;
much time can be wasted by sellers dealing with "lookers". Many potential buyers are victims of wishful thinking and they don't have the financial or intestinal ability to complete the deal.
- The seller is unable to create a competitive atmosphere among buyers.
- The seller sometimes doesn't know how to evaluate offers as to their full value or how to financially structure the business sale to
make the business as attractive as possible to a potential buyer.
- The buyer basically doesn't trust the seller or the information provided (and rightly so in many cases!).
- The buyer's and seller's interests tend to polarize along rigid, opposing lines. They are natural adversaries, and there is no middleman to propose compromise.
- The buyer and seller generally don't know how to arrange financing for the buyer or arrange payout security for the seller.
- The buyer and seller almost always don't know how to bring a transaction to a closing.
Many sellers recognize the problems of attempting to sell their business without a competent broker, and as a result they look for help. The friendly neighborhood real estate agent is always ready to take a listing for a business. It may soon become apparent to the seller though, that the agent may know something about listing residential or even commercial real estate, but has very little knowledge about the workings of a business and doesn't have the unique skills and information needed to properly represent an operating business for sale. The resulting competency void can be best filled by a professional business broker. Beware of the real estate agent who doesn't know the difference between the sales revenue, the accounts receivable and the reconstructed Income and Expense Statement!
FINDING A GOOD BUSINESS BROKER
As a matter of basic principle, all business brokers dealing with the public are bound to be honest and forthright in their conduct concerning the businesses that they represent for sale. They also have a fiduciary relationship (position of trust) to uphold between themselves and their clients (the business seller, in most cases). They must present a business for sale in its "best light" without misrepresenting any facts. This is what automatically sets up an adversarial relationship with the buyer. At times, you will find that a broker's obligation as a fiduciary to the seller may appear to be at odds with their required conduct with prospective buyers.
To help you determine the credentials and qualifications of a business broker, you should ask a few questions before you list with them, if you're a business seller:
How long has the business broker and the agency been in business? You don't want someone learning the ropes with your business.
How many businesses does the broker usually sell per year? This number could be anything depending on the size of the transaction a good broker should be able to handle between $2 million - $3 million in total value of business sale prices per year in the small to medium business size range.
What is the educational background of the business broker?
What forms of advertising does the broker use when offering a business for sale? When selecting a broker, you should seek one who, in addition to the normal forms of advertising (newspaper classified ads, mailings to in-house mailing lists, etc.), will discreetly list your business for sale on the Internet.
What's really most important is: does the broker understand your particular business and have the sales techniques to actually find a buyer for you and to close a deal? Some brokers specialize in restaurants, marinas, medical and other professional practices, etc., and have particular expertise in these types of businesses and have access to buyers focused in these areas. Try to find a specialty broker for your particular business, if applicable and possible. They will better understand your business and are more apt to be successful. Buyers will also find it very useful to contact specialized brokerage firms if they are looking for a specific type of business.
One of the most important decisions a business owner who wants to sell their business has to make is whether or not to hire a business broker to represent them in the sale.
A very important consideration for most business sellers is maintaining confidentiality that their business is for sale while at the same time offering their business for sale to the widest possible group of qualified buyers. This is frequently a serious contradiction in objectives.
Confidentiality is extremely important to most business sellers for many different, but very valid reasons:
- knowledge the business is for sale could give an unfair advantage to competitors
- potential customers may shy away from doing business with a company that is for sale for fear that policies may change with new ownership
- employees may become uncertain about their continued employment prospects with new ownership
- inquiries from many unqualified potential buyers ("lookers") may distract the business seller from continuing the normal business operation during the selling period
- suppliers may become concerned with their continued relationship with the company
One of the processes that professional business brokers use to ensure confidentiality is to get prospective buyers to sign a Confidentiality Agreement before the name of the business and any sensitive financial information is disclosed to them.
Of course, nothing is for sure, and when you do decide to put your business on the market, you should anticipate that eventually, it will become generally known that your business is for sale.
The other key point to be thought about when considering whether to use a business broker is the difficulty of finding qualified buyers. A qualified buyer is someone who is ready and able to buy a business such as the one being offered for sale.
If you can't properly qualify a potential buyer, you'll be wasting a great deal of your time.
A professional business broker knows how to sort through the many non-qualified buyers to get to the few who actually do have the means and motivation to buy a business.
We strongly recommend that sellers use a professional business broker to represent them in selling their business.
This concludes this manual that has provided you with a complete overview of the complicated process of buying and selling a business. By now, you should know about dealing with brokers, finding business buyers, valuing an operating profitable business, conducting negotiations, and closing the deal. It's our sincere hope that this manual has been of value to you in helping to de-mystify the business selling process.
Good luck to all of you buyers and sellers, and remember, it's the fair deal rather than the best deal that will most likely make all of you successful!
Looking to sell your business?
Read this notes carefully to ensure that your deal will be successful.