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Selling a Business Part 2: Listing and Marketing
22 May 2023: Selling a Business Part 2: Listing and Marketing
Last week’s post, the first in this 6-part series on selling a business, focused on preparation. This week we look at listing the business for sale, the subsequent marketing efforts to find buyers and some of the concerns surrounding this phase.
Listing a business for sale assumes, of course, the seller is among the enlightened and has hired – or intends to hire – a professional rather than using the FSBO method of repairing their own broken leg. So far, so good.
But what professional?
Surprisingly, many business owners don’t seem to grasp the importance of hiring the RIGHT professional; someone with the experience, the training, the knowledge and the depth of support needed to do the job. We’ve seen this countless times over the past two decades. Business owners who have otherwise demonstrated wise decision-making capabilities in the running of their business, hire their nephew the real estate agent – someone who has never sold a business nor even taken any training courses on how – who promptly puts that business listing in the local multiple listing service (MLS) where no one, in the history of civilization has ever gone to find a business to buy. Six months later, everyone involved is totally perplexed that no buyers have shown up.
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We offer a comprehensive coaching program – both group coaching in our Brokers’ Roundtable℠ community as well as one-on-one coaching – tailored to Realtors, business owners, buyers and anyone interested in valuing, buying or selling a business.
If you’d like to learn more, email me at
jo*@Wo*******************.com
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It should be a surprise to no one that hiring the wrong professional – a real estate agent, a dentist or a brick mason, for example – would produce terrible results. Like hiring a dentist to put up a brick chimney or a business broker to repair a broken tooth, the wrong professional is unlikely to carry out the assignment successfully.
But let’s assume that the business owner knows all this and, depending on the size of the business in question, hires a professional business broker or investment banker to bring the opportunity to likely prospective buyers.
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Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to accurately value and successfully sell businesses.
The Professional
A good business broker will significantly increase the number of likely potential buyers that are exposed to the business opportunity.
A real estate agent can certainly promise wide exposure of the business to “potential” buyers insofar as untold numbers of people look at the MLS listings every week. But virtually none of those lookers are likely potential buyers. They’re all looking for a house!
A professional business broker, in the role of gatekeeper, vets potential buyers and eliminates the vexation of tire kickers wasting the owner’s time. A professional business broker knows how to market a business while maintaining the level of confidentiality that is often critical to protecting the business’ value during the process, thereby providing the best chance of achieving the maximum value at sale.
Using a business broker to sell a business is the equivalent of using a real estate agent to sell a house, a dentist to repair a tooth and a brick mason to build a chimney. Selling businesses is what a professional business broker is trained to do.
(The Brokers Roundtable℠, an online community created and hosted by Worldwide Business Brokers, has a live interview with Alex Goss, of Live Oak Bank, the largest SBA lender in the U.S., scheduled for Thursday, 25 May. At the conclusion of that discussion there will be a Q&A during which attendees can get their transaction questions answered by a pro. But you’ve got to be a member to attend. You can sign up for The Brokers Roundtable℠ here.)
Now, I grant you that, except for the totally irrelevant real estate license required in a handful of jurisdictions, no license is necessary to claim that one is a business broker; no training or success in passing any tough exam. Business cards seem to be the only requirement in many areas. So, check the company. How long has it been around? Check its web site for testimonials. Does it have a specialist focused on your business type or size?
The Paperwork
The “paperwork” exists on two levels; the business’ agreement with the broker and the broker’s work product – the business valuation and the marketing materials.
The terms and conditions of the brokers role in representing the company are detailed in an engagement agreement between the parties. Similar to a real estate listing agreement – which most business owners are familiar with – it describes the broker’s responsibilities and details how the broker’s fees are to be paid. In the case of most smaller businesses, the broker is paid a commission at sale. When representing larger or specialized businesses, retainers are more likely.
But, at least in our business, professional business brokers perform a second critical function – and perform this function first. We value businesses before we bring them to market. Anyone who has been following this blog for any length of time knows this and knows why. A good valuation, including the authoring of the final report, requires paid access to databases of statistical information, the proper training and many hours of work, often by more than the broker.
Beyond the valuation, the broker’s work product includes two other very important items: the confidential Offering Memorandum and the Abstract of same.
The Offering Memorandum is sometimes referred to as the Book on the Business – in our case, this is usually between 20 and 35 pages long. It includes, among other information, details about the business’ assets, operations, governance, financials, management, contracts, projections, etc. Its purpose is to provide the potential buyer, in a manner that maintains a high level of confidentiality, with all the information needed to make a decision about the suitability of the business save for only a visit to the business itself to see what it looks like.
Now, it’s almost impossible to accomplish that but it’s what should be striven for.
But before the Offering Memorandum goes anywhere, an abstract of that Memorandum – 3 or 4 pages – goes to legitimate potential buyers – along with a confidentiality and non-disclosure document.
These two documents – the Offering Memorandum and its Abstract – are, when properly drafted, the most powerful marketing duo that we’ve seen.
The Bottom Line
The engagement letter, like all the ensuing paperwork, must be clear as to the broker’s responsibilities and duties. Over the years, we’ve dealt with some business owners of questionable ethics – and we expect that some business owners reading this may have dealt with one or more business brokers equally ethically challenged. The need for a concise engagement agreement – listing agreement – should be obvious. Pay attention to it.
And as a marketing tool, the value of the Offering Memorandum and Abstract would be very difficult to overestimate. The former is a challenge – in time and effort – to prepare but when done properly, this has been the most effective sales tool we’ve seen – and judging by the testimonies of a couple of attorneys and lenders, make the process much smoother and success more likely.
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
jo*@Wo*******************.com
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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.
Joe
Searching For…
This week we were contacted by a U.S.-based private equity group looking for opportunities in niche, not fragmented service and software industries with a minimum of $1M EBITDA, anywhere in the U.S..
If any of you know of something that might fit, please let me know.
#business #businessacquisition #sellabusiness #becomeabusinessbroker #businessbrokering #businessvaluation #MergersandAcquisitions #buyabusiness #sellabusiness #realtor #realestateagents
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
jo*@Wo*******************.com