8 Factors to Ensure the Sale of a Business
By How to Sell Your Business Successfully
I read an excellent article recently about how to sell your business, written by Brian Mazar, of American Fortune Mergers & Acquisitions. He described eight (8) critical factors that are required to sell a business. While the number of factors may well be more than eight, Brian did an excellent job of briefly and clearly explaining what makes these factors so important.
- Price It Right – The price of your business needs to be realistic.
Some Business Brokers [aka Merger & Acquisition Advisors, Business Intermediaries, etc.] just can’t bring themselves to tell you that your price is too high. Don’t shoot your business brokers for valuing your business so that it is priced realistically, and don’t choose a business broker on the basis of which one values your business at the highest price so they can get a listing. The price of your business needs to be realistic. The best way to accomplish this is to have your business valued by a third party valuator that is knowledgeable in both the science of valuations as well as the art (market forces) that shape the valuation. Businesses that use a third party business valuation have an 80% chance of selling at a much higher price. Those who do not use a professional business broker and a third party evaluation only have a 10% chance of selling.
Your tendency will be to overprice your business. When you do, the time it takes to sell just stretches out to the point where it is mighty shopworn merchandise by the time it finally sells . . . if it sells at all. Nothing raises the doubts of a prospective buyer more than to find out you’ve been trying to sell for a long time. A full-fledged business valuation costs upward of $2,000, so don’t expect a good written appraisal for less. For a larger company, one can easily cost $10,000.
- Fixtures, Equipment & Facility – Nice looking businesses sell first!
Buyers will want a complete list of equipment and will inspect it to ensure that everything is in good working order. Nice looking businesses sell first! Buyers deduct large amounts from their offering price for businesses that are in less than top shape. Keep your premises neat and clean, and your equipment in good repair.
- A Good Reason to Sell – Buyers must see a logical reason for the sale – without it, they think the worst.
Buyers are always concerned about why a business owner is selling his company. They are afraid the seller may be selling because of some undisclosed fact that may hurt the business in the future. Buyers must see a logical reason for the sale or – without it, they think the worst.
- Form Your Team – Selling a business is not a DIY project.
It all starts with teamwork. You need to form your team. You need your business broker, attorney, and an accountant. Today, selling a business is so specialized that even the best attorney or accountant is no substitute for a specialized and knowledgeable business broker who is very experienced in selling businesses as well as finding qualified buyers.
- Prepare a Package – be able to justify the price and terms based on normal investment returns and risk factors.
Comprehensive documentation from a buyer’s perspective is essential today. That means you have to develop a detailed package to present your business. Today’s buyer prospects are different from those of even just a few years ago. The computerization of the workplace has had a major impact. Most buyers today are “number crunchers”. Today’s buyers also expect you to be able to justify your price and terms of sale based upon their understanding of normal investment returns and risk factors. You also have to compete for your buyer prospect’s attention against an ever-increasing number of sophisticated groups trying to sell other types of investments.
- Target Prospects – Your business broker should set up a process to target and qualify buyer prospects.
After your marketing package is complete, you’ll know what kind of buyer you need. You’ll know how much cash they must have to close the transaction. Your business broker should then set up a process to target and qualify buyer prospects. However, don’t rush too quickly to consider everyone a prospect. There are still people out there, even people with money, who think they can buy a business for no money down. If you don’t have a process to qualify prospects, you may find yourself dealing with these ‘no money down’ tire-kickers, spending lots of your precious time and resources trying to sell them your business. The desire to buy is not proof of a prospect’s ability to buy.
Depending on the size of the business, its price, industry and the state of the economy it may take six (6) months to two (2) years to sell a business. So it is critical to keep your marketing effort confidential except to strictly qualified prospects. Your business broker knows how to do this.
- Negotiate Professionally – Don’t allow your ego to distract you from satisfying your underlying objective – to sell the business.
When you get an interested and qualified prospect, plan your negotiation strategy carefully. Your business broker will facilitate the process, so follow the advice of a professional. Remember that your goal is to sell the business – not to beat the buyer at some negotiation game. You and the buyer should now lay the foundation for a team effort to get to a closing. Don’t allow yourself to get bogged down in disputes with your buyer. Don’t allow your ego to distract you from satisfying your underlying objective – to sell the business. Work with your buyer as an ally. Focus on interests, not on positions. Generate a variety of solutions before deciding what to do about any particular problem. Try to resolve the toughest issues with objective criteria, independent standards and market norms.
- Wrap It Up Quickly – After the purchase agreement is signed, close as soon as possible. Buyers can change their minds overnight.
Even the best buyer prospects can change their minds overnight. After the buyer makes a commitment to buy, get an offer to purchase in writing and get a good sized, non-refundable earnest money deposit. After the purchase agreement is signed, close as soon as possible. Your business isn’t sold until it’s clsoed. Make sure the check clears before you set the plans in motion for that well-deserved vacation.
Click Sell a Business if you want to read the original article written by Brian Mazar.
The Summit Acquisitions Group — Business Brokers and M&A Advisors — specializes in the sale, appraisal, and financing of privately owned companies ranging in valuation from $500,000 to $5,000,000. Contact their offices in Atlanta, GA or Charlotte, NC for a free consultation.