Selling a Business Requires a Good Business Broker
11 June 2018
There are many ways to transition out of a business – a quick sale lock, stock and barrel, a phase out over time, etc. and there are many types of buyers including key executives, regular employees, family members, private equity groups, strategic acquirers, high net worth individuals, etc. Which strategy you choose will depend on your goals and what makes sense for you. But whatever your strategy, you must plan. I recommend giving yourself at least three years – and preferably five – to make a plan, implement that plan and bring about the desired transition.
It amazes our brokers how many business owners believe they can sell their business in a year or less, particularly when the owner has not but a plan in place and is just shooting from the hip. We run into countless obstacles when we try to bring a business to market that would not arise had even a modicum of planning been done up front. As business brokers, the more planning you and the business owners do ahead of time, the smoother and less frenetic the sale process.
What’s the most important aspect of the plan?
As I’ve written repeatedly, the key to the entire process is to know what your business is worth – not what you THINK it’s worth – and develop your transition plan with that in mind.
The valuation of the business is the crucial first step. You’ve got to know what a business is worth before you can plan anything. A professional business broker/advisor – someone with access to professional databases of transition information – is likely the best source of a market-based valuation. Some business owners rely on real estate agents to sell their business but few real estate agents will have any idea how to value a business. And if the agent asks, “How much do you want?”, I can almost guaranty that your business will not sell and, if it does, that you’ve left money on the table.
The proper way to develop a plan will included certain advisors, a professional business broker – not a real estate broker – being among the most important. For you business brokers out there, our approach involves not only assessing the business but also advising – really, cautioning – the owners with regard to the process and, most importantly, what life will be like after the sale. For most business owners, the business represents the majority of their net worth. But most business owners identify themselves as the owners of their business. This aspect of the transition can be the most wrenching, emotionally. We spend a great deal of time with clients to prepare them for this jolt and we suggest various ways to structure the transition to minimize the change that will surely come.
A good business broker will do an analysis of the business – its financials, contracts, customers, etc. – and may be able to suggest steps that would maximize the business’ value. (This is one reason for a multi-year planning process.) Are there problems that, if left unaddressed, could reduce the potential sales price? This is still another area in desperate need of professional business brokers!
While most business owners will eventually sell, over the years, we have found that about 20% want to leave it to family – in spite of the fact that most family members want nothing to do with the business – and an astonishingly high number want to close the business entirely. This last option – simply raising the white flag and walking away – is something we can usually talk owners out of. If a business is making money, it has value. If you’re a business broker – or want to become one – this is a skill that will come in handy, especially if you are focusing your efforts on the so-called Main Street market.
Some business owners anticipate the emotional upheaval that selling will cause but most have not. Most are identified with their business and a sale is likely to cause the seller to feel as if he or she has given up his or her identity. We spend a lot of time on this issue from the earliest client meetings through the marketing efforts and especially during the due diligence that a buyer will perform. I use the word “especially” because during the due diligence period the likelihood of a sale becomes real. There is real fear of giving up what the seller has worked so hard on. The seller created a business from nothing and built it up over 20 or 30 years. It really becomes his or her identity; their standing in the community. This is a big deal. We spend a lot of time on this in our courses and broker training sessions.
What does the business broker do?
Well, a TON of stuff! But one of the broker’s most important tasks is to manage the seller.
That’s right, bucko. If you hire a good business broker, he or she will temper your expectations, caution you about patience, manage the exchange of information and generally try to control the process so that you, the business owner, will come out of the process with your sanity intact. Selling a business is work – and it can occasionally be unpleasant work. Good business brokers have the training and experience to herd the players in the right direction and guide the deal to a conclusion. Many business sales are aborted. That is, some businesses are not the right fit for the buyers that respond to the broker’s marketing. The buyer’s due diligence might expose some issue that a specific buyer cannot abide. These things happen. To repeat one of my favorite expressions, “If it was easy, everybody’d be doing it!”
If you are considering selling your business, get yourself a business broker – a professional one. The good ones will prove their worth repeatedly. If you’d like to know what to look for in a business broker, I’ve prepared a list of characteristics the best ones have. Give me your email address so I know where to send it.
Want to learn more about planning and developing an exit strategy? We’ve put together Five Steps for Developing an Exit Strategy and it’s yours FREE by simply telling me where to send it.
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. For example, if you want to sell your business, what is your biggest concern about the process? Are you wondering what your business is worth or how long the sales process might be? Let me know. 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! And if you didn’t click the link in the meta description, do so here – and enjoy!
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