Business Brokers, Prepare Your Sellers!
Business brokers are the guideposts and guardrails of any business transfer. Well, at least the good ones are.
Professional business brokers know the road and its curves. We’ve been here before. We’ve been down this road and have an idea what’s behind the next bend.
When a business owner thinks he or she is ready to sell, the wise ones call in a pro.
If you’re a business owner that’s thinking about selling, there’s so much to consider about the transaction process – the before, the during and the after – and if you’ve not got the right broker – a professional business broker – the complexities and tribulations of the process are bound to be magnified – and significantly more painful, both emotionally and financially.
There’s a lot of stuff that goes into selling a business. Setting a price and choosing a marketing method are only two issues; and the most obvious ones, at that.
But there’s a lot more and no one single post can cover them all. Though I written about others in the past, here are a few to consider.
What is the State of Your Seller?
One of the most important aspects of selling a business is that the seller is ready to sell. If the seller hasn’t thought through what he or she will do next, they’re likely going to be in for a difficult time when they are longer “going to work”. And this “seller remorse” usually begins to set in prior to closing and, when it does, it can jeopardize the deal. Selling means handing over control to someone that the seller really doesn’t know all that well. That suggests that the seller’s legacy could be at stake. And, if
the seller takes back any financing – as is the case in most small business sales – there should be enough certainty that the buyer will make the required payments so that the seller can sleep at night. These are real issues that good business brokers recognize and know how to handle.
But being ready includes having the real desire to get out. If the sellers still love what they do and enjoy going to work everyday, it may not be the right time for them to walk away. But even if they’re sick and tired of doing what they’ve been doing, what about the market? Is it ready?
What is the State of the Market; the Buying Market?
As I write this, the state of the market overall borders on the frenetic. There’s a lot of dough – from private equity groups and family offices to high net-worth individuals and acquisition-oriented companies – out there chasing opportunities. But it’s not always like that. But even in a robust market like this current one there are sometimes some industries that are simply out of favor; technology advances, environmental issues or obsolescence impact businesses all the time.Our course, The Basic “How-To” of Becoming a Business Broker”, teaches how to become a professional business broker.
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And what happens in an economic downturn? What if interest rates rise? What happens if money gets tight?
These are all issues that impact the state of the market. A seller must be able to determine if the state of the market is such that selling is a good idea.
But most sellers are not equipped to make that determination. The business broker has to have this skill.
Assemble the Team
If the seller is ready and the market is ripe, it’s time to assemble the team of talent that will help the seller get the highest value – price, terms and timing. If the seller intends to retire but wants to live the lifestyle that the business has enabled him to afford, a financial planner is required. If the seller intends to buy or start another business, a contract attorney might be needed to determine if the non-compete agreement the buyers will ask the seller to sign will prevent the seller from doing so.
An attorney with transaction experience – not a divorce lawyer or real estate attorney (even if it’s the seller’s sister or distance cousin who’s offering to do the work at a discount; remember, you get what you pay for!) – is crucial for even relatively simple transactions.
A professional business broker or a third party appraiser who can value the business so that everybody knows where you can expect to end up. A professional business broker who has a database of buyers; a business broker that will co-broke. A broker that has experience in shepherding deals through the often times arduous process of getting to the closing table.
A good business broker is like a pinball wizard. His or her job is to repeatedly “hit the flippers and keep everything in bounds”.
Be an Active Participant
The seller needs to be an active participant in this process from the get-go. Selling a business is not like selling shoes. Selling a business takes time; to prepare the business for sale; to market the business; to vet the potential buyers; to navigate the minefield of due diligence and to eventually funnel everything to the closing table. If you’re a business broker – or want to become one – these are the selling points to use when speaking to a business owner who is thinking about selling their business.________________________________________________________________________
Our course, The Basic “How-To” of Becoming a Business Broker”, teaches how to become a professional business broker.
Become a Professional Business Broker…
Emotions Are Trouble
Ah, yes! Emotions! They’re both unavoidable and utterly damaging to the deal.
Deals have to be about numbers. Yes, the business is the seller’s “baby”. It put three kids through university. It provided a wonderful home for the seller’s family and a nice little vacation spot in the mountains or at the beach. It may have even provided the resources that allowed the seller to build a world-class Ferrari collection.
But the value of a business is based on what it can put in the owner’s pocket and a little research customarily done by a professional business broker will tell us what others have paid for similar businesses.
In addition to all the other aspects of of a deal, a professional business broker is helpful in managing a seller’s emotions. Knowing the State of the Market (see above), having researched the industry the business is in and knowing what similar businesses have sold for, the right business broker can have a huge impact on the seller’s ability to see the process clearly. I can tell you from many years’ experience that this, alone, will make the process significantly less invasive for the seller.
The Bottom Line
If you have any questions, comments or feedback on this topic – or any topic related to business – I want to hear from you. Put them in the Comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast. I’ll be back with you again next Monday. In the meantime, I hope you have a profitable week! Joe
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The author is the founder of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 600 in the world. He can be reached at jo*@Wo*******************.com