Hire a Business Broker to Sell Your Business
“It takes less time to do a thing right than it does to explain why you did it wrong.” – Henry Longfellow
When contemplating the sale of their business, many business owners will make the short sighted decision to try and avoid paying a broker’s commission by selling the business on their own. In the great majority of instances, ‘Do It Yourself’ or DIY sellers will not be successful in selling their business, especially compared to those who choose the right business broker. A professional business broker protects the confidentiality of the sale, handles the vetting process of all prospective buyers, prices the business properly to maximize the purchase price, assists with often complex negotiations, and holds the deal together during the often lengthy due diligence period up until closing.
Importance of Confidentiality
- A confidential business sale does not disclose the name or specific location of the business being advertised.
- Otherwise anyone with an internet connection (including employees, customers, or suppliers) will know the identity of the business.
- Without an intermediary (or business broker) between themselves and potential buyers, the business sale will not be confidential and the business operations are likely to be disrupted during the sales process.
- The DYI seller who tries to sell their business without a business broker faces a daunting task.
- Even if a DYI seller is clever enough to post a ‘blind advertisement‘ online which hides the name and specific location of the business, the buyer still needs someone to contact as a next step.
- This step is necessary because buyers in a business sale must be properly qualified prior to receiving the confidential information about the business.
- If the seller himself or herself qualifies the buyer, then all confidentiality is lost.
- The qualification process involves the buyer completing the proper Non-Disclosure Agreement (NDA) and showing proof of their financial ability to buy the business.
Properly Price Business
Properly pricing a business is no easy task, and often takes years of industry experience. The first step involves gathering and analyzing the correct set of financials. The financials should be the tax returns or profit and loss reports of the business for the past several years. Often, information is missing or incomplete, so one must use the best available information in order to determine the true financial picture of the company. The adjusted owner benefit – or normalized economic profit derived by a working owner – must be calculated and conveyed to buyers in a clear and coherent manner. The valuation of the business is typically a multiple of the annual adjusted owner benefit. The multiple or valuation range is determined by a wide range of factors (often industry dependent) which the business broker should explore in great detail with the owner.
Presenting Business to Potential Buyers
A professional broker should prepare a comprehensive listing package which is given to buyers after they are thoroughly qualified. The listing package should intelligently synthesize the financials of the business so buyers understand how the adjusted owner benefit was derived. Further, the listing package should have a detailed write-up of the business which explains its operations, staffing, and future growth possibilities. Very few DYI sellers have the experience or time to prepare such a listing package that many buyers require before making an offer. Additionally, the business must be prominently yet confidentially advertised to attract the most qualified prospects as possible. The more buyers that see a business for sale and have an opportunity to buy the business, the higher price the seller will receive!
Holding the Deal Together
When a buyer is found, an experienced and professional business broker should always serve to ‘hold the deal together’. Once negotiations between the buyer and seller commence, both sides of a deal must communicate properly and clearly with each other. Often, this is taken for granted and deals may collapse due to miscommunication. Contentious issues inevitably erupt at some point during the lengthy period (often 30-60 days or more) between the time that a deal is ‘under contract’ and closing.
Business Broker Anticipates Problems
An often overlooked role of a professional business broker is anticipating problems which may arise to derail a deal. Often, educating both sides so they know what to expect can prevent such problems. For example, many buyers of businesses are worried that they will not have the help of the seller after the deal. In order to ensure a smooth transition, a business broker should anticipate this problem, discuss it with the seller, and create an action plan that will put the buyer’s worries at ease. Without this ‘glue’ that holds a deal together, a seller may find themselves in the unenviable position of having wasted their valuable time and resources in securing a buyer, but only to have the deal fall apart before its completion.
Avoid Business Disruptions
- Business brokers should require every potential buyer to sign a Non-Disclosure Agreement (NDA) before providing confidential information about a business (including its name and specific location).
- This is primarily because a business can be seriously harmed if their competitors, customers, suppliers, or – most importantly – their employees know that the business is for sale.
- Many unscrupulous prospective buyers – or simply competitors who see the advertisement – can wreak havoc on a business that they know is for sale.
- Employees and customers can be stolen, business can be interrupted by ‘walk-ins’ from buyers seeing the ad, and even landlords can make lives miserable for tenants known to have their business for sale.
- Always keep the listing and advertising process confidential..it is the seller’s best defense against harming their business during the sales process.
Do it right the first time! Hire a professional business broker to sell your business. You’ll end up getting far more advertising exposure, ensure the confidentiality of the sales process, and obtain the benefit of having a broker work to hold the deal together until closing.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a free evaluation for your business at 561-827-1181.