The Process of Selling a Business
1. Structure the Sale or Price It Right
Typically business brokers or mergers and acquisitions advisors do not like to tell you that your business is overpriced.
Do not fault your business broker for assigning a realistic value to your business and never base your choice of business broker on who values your business the highest.
The selling price of your business must be realistic for serious contenders to even consider it for purchase. Business sellers should hire a professional business broker capable of computing all the key sale-value factors, such as: marketplace health, projected growth of other businesses in your industry and proven valuation methods offer assurance that your price falls in line with other salable businesses in the market are competing in.
Your tendency will be to overprice your business. Overpricing the business will result in taking a longer time to sell the business or it may never sell at all. Additionally, a business that stays on the market for more than 18 months has an increased chance that employees, competitors, clients and other parties will learn that the business is listed for sale and go elsewhere.
Advance information of an impending business sale could damage the operations of any business put on the market. Also, a business that remains unsold for too long may be seen by potential buyers as a undesirable purchase, by the very virtue of other savvy buyers passing on a purchase. Buyer doubt increases with time offered, but unsold.(18 months or longer). Before marketing the business, get a professional business valuation performed, a credible, verifiable business valuation greatly increases the salability of any business.
2. Fixtures, Equipment & Facility
Business buyers expect that all the equipment be routinely serviced and in good working condition. Prepare detailed list of equipment with model numbers and serial numbers, buyers may also want to have a third party inspections as well a formal valuation of the equipment and fixtures. Businesses with legitimate financial records and well maintained facilities and and modern equipment will get better consideration from perspective buyers. Savvy buyers will deduct significant amounts from the asking price if areas of the business appear unkempt or need improvements before reopening under the new ownership.
3. Have a Good Reason to Exit & Sell a Business
Buyers are always concerned about the reason for the sale of a business. They are afraid you may be selling a business because of a declining industry, the effects of globalization, competitor dominance or some undisclosed fact that may negatively effect and hurt the business in future years. Buyers want to hear a valid and logical reason for the sale. Without a good reason for a sale, business buyers may assume the worst and either offer you a lower price (valuation) or just walk away.
4. Form an Advisory Team
To sell a business successfully you need to have the right group of experts. Start by searching for the services of a credible Business Broker/ advisor followed by an attorney with merger and acquisition transaction experience. Your accountant will also need to be involved in some aspects of the business sale. Your Business Broker advisor will play the most critical role in the sale of your business therefore, they need to be qualified and experienced exit planning, business valuation and many other matters so you can achieve a predictable and successful outcome in the sale of your business.
Selling a business in today’s troubled marketplace can be so dependant on making the right moves, initially, it is imperative to bring in a qualified mergers & acquisition advisor, investment banker or business broker for most small to mid size businesses. The best attorney or accountant specializes in the legal issues and straight ahead accounting, and is not a merger and acquisition advisor, experienced in the intricacies of selling a business. Business valuation, tax matters as pertains to a business sale, the structuring of a business sale, hurdles to a business sale and creative business marketing solutions are matters best left to a specialized merger-acquisition professional and/or business sales professional.
5. Prepare A Good Marketing Package
An effective and complete marketing package is absolutely critical. Also, be prepared to provide crucial information during the due diligence process. This takes a good amount of preparation. To anticipate the buyer’s queries at the due diligence phase, it’s important to have a detailed “offering memorandum package” ready for buyers to look over when marketing your business.
In the age of computers and readily available data and information, buyers can become quite informed. A qualified business buyer will surely get a professional business valuation before considering serious negotiations. Buyers and their agents will want you to justify your price and terms of sale, based on normal investment returns and risk factors. Having a professional business valuation report will insure a proper defense of your asking price. You also have to compete for a prospect’s attention while he is entertaining the prospect of other similar businesses.
6. Target Qualified Buyer Prospects
After you have performed a thorough review and due diligence and prepared a marketing package (offering memorandum), you are ready to sell your business and look for buyers. You must educate yourself about the types of buyers that exist in the market place. After studying buyers you will have a better idea which buyer to seek out for your business: a financial buyer, a corporate buyer, a private buyer or a strategic buyer.
To assure that the buyer is qualified to buy and operate your business, you must learn how to carefully screen and qualify the buyer. Your business broker can set-up a process to target and qualify these prospects. Desire to buy is not proof of a business buyers ability to buy and operate a business successfully. Be very careful in the review and qualification of buyers. Many buyers do not have the money, skills or vision to successfully buy and operate a business.
Depending on myriad factors, it may take 6 months to 2 years to sell a business. It is of utmost importance to keep the sale of your business confidential – except to pre-qualified buyer prospects. A professional mergers and acquisitions professional will be about all of these issues and will walk you through the process of successfully selling a business.
7. Negotiate Professionally
When you find a qualified business sale prospect, plan your strategy carefully. A mergers / acquisitions professional can get you the best results, so heed his advice. Remember that your goal is to sell your business and not beat the buyer at negotiations. You and the merger and acquisition advisor should carefully plan all of the negotiation points. Be prepared to cede some issues slowly and carefully. Always ask for some concession in exchange for your own concessions. Have clear goals for the sale of your business and do not allow yourself to become mired down in technicalities, or you will lose the focus of your goal. Don’t get tangled up in disputes or become emotionally swayed by the buyer.
Don’t allow your ego and pride to distract you from satisfying your underlying goal to sell your business. It is not advisable to establish a personal relationship with the buyer. It is helpful, to negotiations, to develop an understanding of the buyer’s situation and goals, concentrate your negotiation on matters common to both buyer and seller. Set aside time to consider a number of options, with your mergers and acquisitions advisor, and you’re more likely to have more viable options before acting on any particular approach. Start with the simpler points and then move to overcoming the more difficult hurdles.
8. Wrap it Up Quickly
Even the best buyer prospects can change their minds overnight. After the buyer prospect makes a commitment to buy your business, get an offer to purchase in writing and get a good-sized, non-refundable earnest money deposit. After the offer to purchase agreement is signed begin to negotiate the finer points and begin the process of drafting a definitive sales agreement along with all of the other closing documents and prepare to close on the business as soon as possible. Your business isn’t sold until the money is in your hand.
