There are only four ways a business owner will exit their business:
- They’ll close it
- They’ll give it away (most likely a son or daughter)
- They’ll die at their desk
- They’ll sell it
One of every five businesses will change ownership every year. There are right and wrong ways to go through the process, and while using a professional business broker is not mandatory (I didn’t when I sold my first business), more times than not using a professional business broker will help the process be more efficient and effective, and make more money for the seller.
1. Pricing and Structure. Sellers obviously want the highest price for their business. To determine the best price, a professional broker will use industry-tested valuation techniques and ratios based on sales of similar businesses. Another critical factor in pricing a business will be the terms offered, and the deal structure. The broker will work with the seller’s financial advisors (accountant and lawyer) to achieve the highest amount of net proceeds after the sale. While the selling price is important, the amount that the seller keeps at the end of the day is what is really important, and this has as much to do with deal structure as it does with offering price.
2. The Offering Memorandum. A buyer will require information on the business activity, history, customers, sales and earnings, marketing strategy, employees, assets, facilities, location and the reason for sale. A professional business broker will create an Offering Memorandum to present this information in a coherent packaged story. This will help a buyer make an informed decision and obtain the required financing to make the deal.
3. Finding Prospective Buyers. Once you have a good Offering Memorandum, you want to make sure it is widely (but confidentially) distributed. Buyers don’t grow on trees. A professional business broker will have a database of investors, professional associations and investment groups to find prospective buyers. Target marketing through trade publications, direct mail and internet sites may also be used to reach prospective buyers. Advertising in newspapers both local and national, as well as in industry trade journals will produce qualified buyer prospects. To cover all of this takes a lot of time, and money.
4. Qualifying Buyers. Dealing with unqualified buyers is a sure waste of time for the business owner who wants to handle his own sale. The professional business broker knows how to focus on prospects who are financially qualified, genuinely interested and technically capable. Finding a real “qualified buyer” is a skill that is developed through years of experience doing business transactions.
5. Presenting the Business. The professional business broker is experienced in handling negotiations. The broker also offers the seller the convenience of continuing to manage the business while the selling process is under way. Information is disclosed to buyers in stages, as needed, while the deal progresses through the due diligence process. This assures an efficient process that minimizes the time investment by the seller. It is important for a business owner that he/she not stop running the business while trying to sell it.
6. Maintaining Confidentiality. Most business owners are rightly terrified that customers, employees or competitors will find out their business is for sale. A professional business broker understands this, and will bend over backwards to assure that the process remains confidential until such time as the owner is ready to go public with the news.
7. Getting the Deal Closed. The sale of a business is an emotional process that invariably has ups and downs. The professional business broker will be a counselor through these cycles, as he/she coordinates the moving parts from concept to closing. A professional business broker doesn’t make any money until the owner gets paid, so winding through a successful conclusion is the final basis for everyone’s success.
Tennessee Valley Group
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