Sell Your Business the Right Way
In order to confidentially sell a business for the best price possible, the most important step one can take is to properly list the business with a professional business broker. This entails signing a listing agreement that has the agreed upon asking price with the business broker. After the listing agreement is signed, the business should be listed (confidentially) for sale by the business broker. What are the next steps for the seller once the business is listed for sale? Let’s explore!
Seller Should Focus on Running Their Business
- By far and away, the most important job of the seller during the listing process is to focus on running their business.
- It is the job of the professional business broker to procure the buyer, to qualify all potential buyers, and handle all aspects of the advertising process including dialogue with potential buyers.
- If the business advertisements (including the asking price) need revision, it is the broker’s job to accomplish these tasks with the consent of the seller.
- The seller’s time and energy should be focused toward successfully increasing the sales and profits of their business.
- It is critical that the responsibilities of handling the sales process be delegated to the business broker.
- Any South Florida business broker should know that they must proactively take on these responsibilities so that the business itself does not suffer by the seller’s inattention.
Performance of Business Critical to Sale
One of the most important questions that a buyer will have about a business for sale is the current trend of the sales and profits. While past performance is critical, most buyers will want ‘real-time’ information including the most up to date financials as possible. It is thus imperative that during the sales process, the business is doing as well as possible. If sales are tracking poorly, margins are suffering, or there is a loss of a major customer, then that will reflect poorly on the business in the eyes of the buyer. The potential buyer will be less likely to make an offer. Clearly, if the seller’s goal is to get the best possible purchase price for their business, then their attention needs to be on running the business successfully throughout the entire sales process.
Communicating and Meeting Potential Buyers
While the seller’s focus should always be on successfully running their business, there will be a time during the sales process when the seller will need to meet and speak with potential buyers. Any in-person meeting should take place confidentially (without employees overhearing the conversation) and in the presence of the broker. All meetings should be planned well in advance with sufficient notice to the seller so that their business is not interrupted in any way. Further, the broker must properly qualify the buyer before the meeting is allowed to take place. No seller should meet with a buyer who is not financially capable of buying the business.
Example of Meeting Potential Buyer
- Alan has his healthcare staffing business listed for sale with Bob the business broker.
- Cathy is interested in buying the business, and is properly qualified by Bob as a potential buyer.
- Bob asks Alan if they can meet next Friday with Cathy, and Alan agrees.
- During the meeting, Cathy asks how sales have been tracking in the last few months (the financials provided to her did not include these months).
- Additionally, Cathy has many questions pertaining to the company’s customer relations as well as how the company recruits their labor force.
- After receiving positive responses to her questions, Cathy asks Alan for copies of his bank statements and W2 reports.
- At this point in the meeting, Bob the business broker should intervene and remind Cathy that such a request should only be made during the formal due diligence process.
- This process only begins once a written offer is accepted by the seller and a refundable deposit is made.
- The meeting with Alan and Cathy should only cover issues that Alan is comfortable discussing before the commencement of formal due diligence.
- In all, Cathy was impressed with Alan’s business, and after the meeting tells Bob that she will soon make a formal offer in the form of a Letter of Intent.
Involving Attorney or Accountant by Seller in Sales Process
The business seller may consult with their attorney, accountant, or other advisor at any time in the sales process. Particularly for larger business sales with complex terms, it is of paramount importance that the seller seek and receive competent legal or accounting advice. No matter the deal size, the seller should not incur significant fees for such outside advisors until actually necessary to do so.
Legal Fees Usually Not Necessary Until Buyer Proposes Purchase Agreement
For most business sellers, it is not necessary to incur significant legal fees until an actual buyer has proposed an actual purchase contract to buy the business. Although some sellers may choose to hire an attorney before signing a Letter of Intent (LOI), most do not since the LOI is not the actual contract between the buyer and seller. The LOI simply outlines the framework of a deal and normally the two principals of the deal can handle the negotiations themselves.
Accounting Fees Usually Not Necessary Until Formal Due Diligence
The seller may need to incur accounting costs during the formal due diligence phase. This is because the formal due diligence phase requires the seller to produce a ream of financial documents (similar to getting audited) that is usually better handled by an accountant. It is important to note that the seller should only divulge super-sensitive financials (such as bank statements, payroll records, or copies of invoices) during the formal due diligence process (which takes place after a formal offer such as an LOI is agreed upon).
In general, the business seller’s valuable time, energy, and resources should be safeguarded by the business broker to the best extent possible during the sales process. A seller’s focus should be on running their business, while only dealing with properly qualified buyers at the appropriate stages in the sales process.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.