Selling A Business Online
A business owner who wishes to sell their own business online may be in for a rude awakening. A ‘for sale by owner’ (FSBO) transaction, which does not have the the benefits of having a professional business broker, faces a daunting task. It is difficult if not impossible for a business owner to sell their business online for the best possible price, with limited disruption, and in a confidential manner.
Determine the Asking Price Prior to Advertising Business Online
- The first step in the sales process is to determine the asking price.
- Frequently, FSBO sellers of businesses do not have an appropriate asking price.
- Either wildly overvalued or seriously undervalued, the FSBO seller does not usually have the experience or knowledge to appropriately price a business.
- Unlike in real estate, there often are no ‘comparable sales’ to use when determining the asking price.
- Additionally, most buyers will want a clear description of the adjusted owner benefit and how it was derived.
- Without showing the adjusted owner benefit, the proper asking price can not be determined.
- The FSBO seller must be able to price the business properly before placing the business for sale.
Advertise Business Online
Several websites accept paid ‘business for sale’ advertisements including bizbuysell.com, bizquest.com, businessbroker.net, businessmart.com, and businessesforsale.com. In order to advertise on an assortment of such websites, the FSBO business seller will need to pay about $300-500/month (depending on the quality of advertisements). Typically, it takes about 6-10 months to sell a business online. Thus, the FSBO seller could face substantial costs of several thousand dollars in advertising expenditures.
Online Advertisements Should be Confidential
Online ‘business for sale’ advertisements must disclose the contact information for whom the viewer contacts in order to get information. Without an intermediary between the viewer and the seller, then it becomes very hard for the seller to hide their identity. Online advertisements must be ‘blind ads’ in the sense that they do not allow the viewer to figure out the identity of the business. This means that pictures of the business should not be posted and information in the advertisement must be carefully conveyed so as to maintain the seller’s confidentiality.
Ensure Buyers Sign Non-Disclosure Agreement
After a prospect inquires about the online advertisement, it is essential that the buyer signs a Non-Disclosure Agreement (NDA) prior to receiving the confidential information about the business. Even if the FSBO business seller does not care about the confidentiality of the sale, the NDA still affords the seller valuable legal protection. For example, the NDA affords a seller legal protection against an unscrupulous competitor who pretends to be an interested buyer. Such an unscrupulous competitor may try to recruit the seller’s employees, convince customers not to patronize the business since it is for sale, or use the company’s privileged information for nefarious purposes.
Along with having the buyer sign an NDA, the FSBO seller must also qualify the buyer. This simply means ensuring that the buyer has the financial means necessary to purchase the business. In some cases, requiring external proof of funds is the only way to ensure that the buyer is financially qualified. If the sale can be funded by the Small Business Administration (SBA) and the buyer is seeking SBA financing, then it is even more critical to seek a prequalification letter or evidence that the buyer is qualified.
Prepare Listing Package for Buyers When Selling Business Online
After a buyer signs an NDA and demonstrates that they are financially qualified to purchase the business, they expect to receive a listing package. The listing package should properly identify the business, describe the business in the most comprehensive detail possible, contain suitable financials (such as tax returns or profit and loss statements) that are reconciled to reveal the adjusted owner benefit, and justify the asking price. If the listing package is not professionally prepared or does not give the buyer sufficient information to move forward, then the vast majority of buyers will simply walk away.
Putting the Deal Together
- Once a qualified buyer is identified and wants to move forward, the real work begins!
- Without having a professional business broker to hold the deal together, the seller must rely on themselves to communicate with the buyer and to push the deal through to closing.
- Negotiating the terms of the deal, for example, often includes many other important items other than the purchase price.
- These include the non-compete agreement, the training period, assuming the lease, and having the seller potentially finance part of the purchase price.
- Moreover, the FSBO seller must be prepared to deal with lenders if the deal is being externally financed.
- While using an attorney may be of assistance, such counsel is costly and attorneys do not necessarily want a deal to close (remember they get paid by the hour!).
- Anticipating issues that can derail the deal, disclosing all relevant items ahead of time so there are no surprises, and ensuring the buyer is doing everything they can to close within the prescribed time limits as set forth in the purchase agreement all must be handled by the FSBO seller or their counsel.
Professional Business Broker Maintains Confidentiality
A business owner wanting to maintain their confidentiality has almost no choice other than using a business broker. After all, in the age of Google, how can one maintain the confidentiality of their business when the seller himself or herself is the preliminary contact person in the online ads? All one has to do is google the phone number or name of the seller and the identity of the business will invariably be revealed. If this near impossible hurdle can be overcome, then the seller must still hide their identity while qualifying the buyer and having them sign an NDA.
Selling a business online involves evaluating the business properly, determining the best possible asking price, placing the advertisement online confidentially, creating a professional listing package, and holding the deal together until closing. A wise business owner will focus on running their business and leave the sale to a trained professional.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.