Ten Steps to the Successful Sale of a Business
Why Use a Business Broker to Sell Your Business?
Common Seller Questions
Ten Steps to the Successful Sale of a Business
1. Make sure you have a valid reason for selling your business. Don't decide to sell because you have had a bad week or because moving closer to the grandkids sounds like a good idea. Also, don't decide to "test the waters" just to see what sort of price your business will command. Before you decide to sell your company, focus on your true objectives. The first thing a prospective buyer will want to know is the reason you are selling. The more valid the reason you offer, the more serious the buyer will be.
2. Don't wait until you have to sell, for either economic or emotional reasons. You don't want anxiety to force you into accepting a deal that's not good for you--or for the buyer. During the two months preceding the new year, sellers always say that they don't want to sell until the after the first of the year. This delay can be an unfortunate one.
3. Once you have made the decision to sell--and before talking to your business broker-- you should gather the information needed to market and subsequently sell your business. Here's a list of the key items:
- Three year's profit and loss statements
- Federal income tax returns for the business
- List of fixtures and equipment
- The lease and any lease-related documents
- Copy of the franchise agreement (if applicable)
- List of loans against the business with amounts and payment schedule
- Copies of any equipment leases
- An approximate amount of the inventory on hand
- Names of outside advisors
4. Remember that you are part of the marketing team. Your business broker can't do it all--and might even ask you to come to an office meeting to tell the rest of the staff about your business. Follow your broker's advice about dealing with prospective buyers--there's a right and a wrong time to meet them.
5. Confidentiality works both ways. The broker will constantly stress confidentiality to the customers to whom he or she shows your business. However, as the seller, you must maintain confidentiality about a pending sale in your day-to-day business activities.
6. You, as the seller, should put yourself in a prospective buyer's position. The next time you go to your place of business, pretend you are a buyer looking at it for the first time. How impressed are you?
7. Just because you are selling, now is not the time to let the business slip. It's important that prospective buyers see your business at its best: bustling, and showing no signs of neglect. Here are a few areas to focus on:
- Keep normal operating hours. There is a tendency for sellers to "let down" when they put their business up for sale.
- Repair signs, replace outside lights, and do a general spiffing-up for first impression purposes.
- Tidy the outside premises (if appropriate).
- Spruce up the interior as well.
- Repair non-operating equipment or remove it.
- Remove items that are not included in the sale.
- Maintain inventory at constant levels.
8. Engage an outside professional who understands the sales process. David Gumpert, former Harvard Business Review associate editor said, "Inexperienced lawyers are often reluctant to advise their clients to take any risks, whereas lawyers who have been through such negotiations a few times know that's reasonable." If you are going to use a lawyer, use one who is seasoned in the business sale process.
9. Be flexible! You need to keep the ball rolling once an offer has been presented. Study it closely. Just because you didn't get your asking price, the offer may have other points that will offset it, such as higher payments or interest, a consulting agreement, more cash than you anticipated or a buyer that you are comfortable with. You have probably spent years building your business--you want it to continue to be successful. The right buyer may be better than a higher price, especially if there is seller financing involved, and there usually is. If you must counter-offer, do so only on those points that are really important to you. Be willing to "horsetrade" if you must to complete the deal. There is an old adage that the first offer you get is probably the best you will ever get--and it's true.
10. Remember that most successful transactions are successful because they create a win-win situation for everyone involved.
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Why Use a Business Broker to Sell Your Business?
Some business owners feel that they can sell their business themselves. After
all, who knows the business better than they do. Often, these owners become
sellers by simply placing an ad in the newspaper and waiting for the telephone
to ring. They think of the money they can save by not paying a broker's fee.
Sounds good, but it very seldom works! First, the telephone may not ring. If it
does, it may be the local competition attempting to find out what is for sale
and for how much. Those who may be interested will visit the business, ask a
thousand questions, leave, and never come back. So much for confidentiality,
proper pricing, qualifying the prospects, and finding the right buyer.
Business brokers are not magicians. They can't sell an overpriced business or create a demand that isn't there. What they can do, however, is market the business so it is shown only to qualified and interested buyer prospects. Sellers have to understand that business brokers can provide suitable prospects from the overwhelming majority of people who don't really know what they want. Very few buyer prospects really know what kind of business they want, or what best fits their needs. In fact, 90 percent of all buyers are considering buying a business for the first time, and are open to all suggestions. A business broker can supply many prospective buyers that sellers couldn't find on their own.
Very few sellers price their business properly. A business broker has a handle on the local marketplace, access to market data, and pricing information not available to a seller. Business brokers are also good sources of outside financing, if available. In some cases, the full sale price is not the issue, but rather how the sale is structured is the key to a successful sale.
Business brokers generally have a backlog of buyers that they work with on a current basis. They prepare a business profile on the businesses they represent, designed to show the business in its best light. They know how and when to advertise, when to use trade publications, how to use the Internet, and how to qualify buyers. Business broker can maximize the price of a business and create added value so that their fee is generally a non-issue. Sellers usually receive a higher price when working with a business broker, even after the fee, than they would if selling the business on their own. Remember, it almost always pays to use a professional!
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Common Seller Questions
How long does it take to sell my business?
It generally takes, on average, between five to eight months to sell most businesses. Keep in mind that an average is just that. Some businesses will take longer to sell, while others will sell in a shorter period of time. The sooner you have all the information needed to begin the marketing process, the shorter the time period should be. It is also important that the business be priced properly right from the start. Some sellers, operating under the premise that they can always come down in price, overprice their business. This theory often "backfires," because buyers often will refuse to look at an overpriced business. It has been shown that the amount of the down payment may be the key ingredient to a quick sale. The lower the down payment, generally 40 percent of the asking price or less, the shorter the time to a successful sale. A reasonable down payment also tells a potential buyer that the seller has confidence in the business's ability to make the payments.
Why Is Seller Financing So Important To The Sale Of My Business?
Surveys have shown that a seller, who asks for all cash, receives on average only 70 percent of their asking price, while sellers who accept terms receive on average 86 percent of their asking price. That's a difference of 16 percent! In many cases, businesses that are listed for all cash just don't sell. With reasonable terms, however, the chances of selling increase dramatically and the time period from listing to sale greatly decreases. Most sellers are unaware of how much interest they can receive by financing the sale of their business. In some cases it can greatly increase the amount received. And, again, it tells the buyer that the seller has enough confidence that the business can, indeed, pay for itself.
What Happens When There is a Buyer for My Business?
When a buyer is sufficiently interested in your business, he or she will, or should, submit an offer in writing. This offer or proposal may have one or more contingencies. Usually, they concern a detailed review of your financial records and may also include a review of your lease arrangements, franchise agreement (if there is one) or other pertinent details of the business. You may accept the terms of the offer or you may make a counter-proposal. You should understand, however, that if you do not accept the buyer's proposal, the buyer can withdraw it at any time.
At first review, you may not be pleased with a particular offer; however, it is important to look at it carefully. It may be lacking in some areas, but it might also have some pluses to seriously consider. There is an old adage that says, "The first offer is generally the best one the seller will receive." This does not mean that you should accept the first, or any offer -- just that all offers should be looked at carefully.
When you and the buyer are in agreement, both of you should work to satisfy and remove the contingencies in the offer. It is important that you cooperate fully in this process. You don't want the buyer to think that you are hiding anything. The buyer may, at this point, bring in outside advisors to help them review the information. When all the conditions have been met, final papers will be drawn and signed. Once the closing has been completed, money will be distributed and the new owner will take possession of the business.
What Can I Do To Help Sell My Business?
A buyer will want up-to-date financial information. If you use accountants, you can work with them on making current information available. If you are using an attorney, make sure they are familiar with the business closing process and the laws of your particular state. You might also ask if their schedule will allow them to participate in the closing on very short notice. If you and the buyer want to close the sale quickly, usually within a few weeks, unless there is an alcohol or other license involved that might delay things, you don't want to wait until the attorney can make the time to prepare the documents or attend the closing. Time is of the essence in any business sale transaction. The failure to close on schedule permits the buyer to reconsider or make changes in the original proposal.
What Can Business Brokers Do - And, What Can't They Do?
Business brokers are the professionals who will facilitate the successful sale of your business. It is important that you understand just what a professional business broker can do -- as well as what they can't. They can help you decide how to price your business and how to structure the sale so it makes sense for everyone -- you and the buyer. They can find the right buyer for your business, work with you and the buyer in negotiating, and every step of the way until the transaction is successfully closed. They can also help the buyer in all the details of the business buying process.
A business broker is not, however, a magician who can sell an overpriced business. Most businesses are saleable if priced and structured properly. You should understand that only the marketplace can determine what a business will sell for. The amount of the down payment you are willing to accept, along with the terms of the seller financing, can greatly influence not only the ultimate selling price, but also the success of the sale itself.
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