Selling a Business: FSBOs (Pt 1)
24 October 2022: Selling a Business: FSBOs (Pt 1)
What’s a FSBO?
FSBO is an acronym for “For Sale Buy Owner”. Historically used by real estate agents when referring to home owners that try to sell their own house, it has been gaining common use in business and refers to business owners that try to sell their own business.
A business owner trying to sell their business themself is analogous to a dentist trying to do his own knee replacement – and it’s one of the top three reasons most business that come to market don’t sell.
Just because a business owner has many years of business experience that includes negotiating various business contracts with suppliers and customers doesn’t mean that experience translates to knowing how to value, market and negotiate the sale of a business.
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Selling a business is a very different type of selling and involves a very different type of negotiation.
Selling a business presents a completely unique set of challenges, both financial and legal. And these challenges are typically complex and technical. Selling a business requires specialized training and the technical skills and experience that such training provides.
Trying to sell a business without these critical ingredients is highly likely to result in failure; failure to realize the net proceeds needed by the seller, failure to sell in any reasonable amount of time or even failure to ever find a buyer.
If you’re trying to broker the sale of a business without the necessary training and know how to do it successfully, you’ll waste a lot of time and money. If you’re the owner of a business trying to sell it without the help and guidance of a knowledgeable professional, you’ll not only waste that time and money but, in all likelihood, damage your business’ worth.
Selling a Business: What Counts
The sale of a business is comprised of two primary components: price and terms. How these components are developed derives from two fundamental aspects of the process: the valuation and the negotiation.
There’s an old real estate saying that goes, “Your price, my terms. My price, your terms.” The same concept can obtain in the sale of a business (a condition that may be one of the reasons real estate agents think they can successfully sell businesses).
Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to accurately value and successfully sell businesses.
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However, the terms involved in the sale of a business are almost always far more exhaustive, detailed and complex than those involved in residential real estate deals. Not knowing what you don’t know is a sure way to end up with a crummy deal.
And establishing the price – or value – of a business is a far more elaborate process than establishing the price – or value – of a house.
But ironically, the place to start when selling a house is the same as when selling a business: knowing what the business is worth. This singular bit of knowledge provides a basis for establishing a price, or target. And this is where most business owners – and real estate agents – doom the chances of success.
Without this basic knowledge, there’s no way to know if your business represents a realistic opportunity to a buyer, whether it offers a realistic return on a buyer’s investment or whether it’s competitive with the hundreds of other businesses that are always available to buyers. You’re competing not only with those hundreds of other businesses, but as a FSBO, you’re also competing with the professional brokers selling them.
At least as important is the fact that, if you don’t know what the value is, it’s impossible to justify what you want for it.
Business buyers have a cornucopia of options. They try to find the best fit.
You Already KNOW this!
But this is a fundamental aspect to the sale of anything – including whatever products or services the business you want to sell offers.
No matter what your business sells, unless some government agency has given you the protection of blocking others from offering the same products or services, someone else is out there competing with you. Whether you’re successful or not depends to a large degree on whether your prices are competitive. If they’re not, you’re not likely to be in business very long. No matter what business you’re in, others are providing competitive options.
Most business owners know this intuitively – and it always puzzles us when business owners don’t consider this fact when they’re ready to sell their business.
There are ALWAYS other businesses for sale competing for buyers. If you want to sell yours, you have to recognize this competitive aspect.
The Bottom Line
So, what counts when selling a business?
As I mention above, price (value) – what this post discusses – is one of the two primary components. The other – negotiation – is a bit more complex and we’ll discuss that in Part 2 next week.
But price is where to start. And if you don’t know how to value a business – to know what it’s worth in the marketplace – any price you establish for it is unlikely to be even remotely related to its value. This simple-to-grasp fact would argue that, if you’re a business owner who insists upon trying to sell your business yourself, you get it valued by a professional.
That advice applies to real estate agents as well. Would you take a listing on a $500,000 house if the seller wanted $2 million? (Well, some of you would just to say you’ve got a $2 million dollar listing. But what a waste of time for bragging rights that will generate ZERO dollars – or Euros or pesos or yen!)
If you value your time and marketing money, give yourself at least a fighting chance to sell it!
Next week, Part 2: Negotiation and the attendant issues.
I’d like to hear from you. What topics would you like me to cover? How can we tailor these posts to be more useful to you and your business. Let me know in the comments box, below, or email me at joe@WorldwideBusinessBlog.com.
If you have any questions or comments on this topic – or any topic related to business – I’d like 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 safe and profitable week.
We’ve been contacted by a U.K.-based buyer looking U.S.- and U.K.-based businesses in manufacturing, energy and warehousing and distribution with minimum DE/EBITDA of US$900,000.
If any of you know of something that might fit, please let me know.
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The author is the founder, in 2001, 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 500 in the world. He can be reached at joe@WorldwideBusinessBlog.com