Selling Your Business: Getting an Unsolicited Offer
20 March 2023: Selling Your Business: Getting an Unsolicited Offer
If you’re a business owner, what do you think the odds are that somebody will just show up someday and, out of the blue, say to you, “We want to buy your business”?
You don’t think it will happen? Well, I’m here to tell you, Bucko, it very well could.
It happened to me.
I started a business in 1991. My plan was to build the business to a certain point and then sell. But because any sale would, in my mind, be 10-15 years down the road, I had, at most, only a vague idea about how and when that might pan out. I had no plan.
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But to my complete surprise, a couple of years later someone showed up and in fact said, “We want to buy your business”.
Not surprisingly, I felt great! I thought, “Gee, I’ve built something that someone thinks has enough value that they want to but it!” I was ready to break out the champagne.
But was the buyer serious? Should I take the offer seriously and begin a process that could really upend my business – and my life?
What I went through was bittersweet but could have been expected had I’d given the possibility some consideration before an offer arrived. But my experience has been part of the foundational structure of the broker training we’ve developed at Worldwide Business Brokers to help business owners recognize that receiving an unsolicited offer is not unusual and how to be prepared for one.
This post is far too short to be a tutorial, but if someone shows up at your business to tell you they want to buy it, here are four things to consider when selling your business is a possibility.
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Is the Potential Buyer Serious?
There’s no way to tell for sure, of course, but you can get a sense of how serious a buyer is simply by asking a few questions. But be aware that the person that calls – legitimate or not – is unlikely to disclose a lot of useful information.
For example, if they’re on a fishing expedition, they will claim the requirement of confidentiality when asked who they represent. But this is likely to be the case even for a legitimate buyer.
The person that called MAY be an actual buyer – but just as easily could be a business broker cold-calling looking for listings. But that business broker might actually be representing a client that has hired the broker to find a specific type or size business for the client to acquire – and to do so without news of the buyer’s interest becoming public knowledge.
The caller could also be nothing more than a “tele-marketer” hired by either a legitimate buyer or a bottom-feeder taking a “shotgun” approach just to see what might be available. This type of caller is similar to someone calling to set up a “meeting” with a gutter salesman.
Ask questions. What industry is the buyer in? Does the caller know anything about your business? How quickly does the buyer plan to move on an acquisition?
Should You Believe the Number?
In some instances, there may be no call but rather a faxed or mailed LOI.
A letter of intent generally contains a number. But unless the financial details of your business are public knowledge, the number is unlikely to bear even the most remote relation to reality.
A charlatan is likely to put a totally unrealistic number in their “offer” to dazzle you with an unbelievable payday. But don’t believe it. You can be sure that, once discussions start, that buyer will present all sorts of reasons – financial, legal, operational, governmental, etc. – to justify lowering that number. And as time passes between the LOI date and the supposed closing, the number will continue to get smaller.
Such buyers know that once you’ve begun investing time in the expected “sale” – and start “spending” the imaginary proceeds – you’re more likely to be pliable in negotiations.
A legitimate buyer is unlikely to put a number on the table because, until they see the financials, they’re unlikely to know what your business is worth.
Recognize the Time Required
Properly-priced businesses generally take somewhere in the neighborhood of six to 12 months to sell. Someone who claims to want or need to close in 90 days – or within any specific time frame – is suspect. Due diligence alone could require 90 days.
But would be correct to assume that a legitimate buyer that approaches you presents a scenario that eliminates the first two or three months of the customary six to 12 month period simply because no marketing is needed. The buyer is, theoretically, already in hand.
But still, due diligence, document preparation, financing and all the smaller issues that attend the transition of a business take time.
But beyond that, arguably the biggest time concern is that you have to run your business all the while this is going on.
Selling a business, even one represented by a professional, is extremely distracting for the business’ owners and managers. The time spent negotiating and strategizing the sale is significant and every hour spent on selling it is taken from the amount of time spent on running and growing it.
It is common for a business, especially those that aren’t represented by a professional, to suffer revenue and profit declines during what is always a hectic period because everyone at the top of the organization is so distracted with the demands of the buyer, in particular, and the overall transaction in general.
Have You Prepared?
There are certain aspects of selling a business that require preparation if the process is to run even moderately smoothly and have a chance of success. This is particularly true if the seller wants to get the highest possible value for what he or she has spent the last X-number of years building.
Are the financial books in order? Are all contracts – with vendors, clients, landlords, employees, etc. – current and enforceable? Are the employee records clear? Are taxes – especially employment taxes – paid to date? Has the balance sheet been updated or is it still carrying the original value of three 1992 Chevy delivery vans and a couple of ’79 sales department Pintos that have been sitting in the warehouse unused since you replaced them as a result of the 100% expensing provision contained in the Tax Reduction and Jobs Act of 2017? (The importance of a clean balance sheet cannot be overstated.)
But there are two other issues that are arguably even more important than any of the above and they are, 1) do you have a plan for life after the sale and 2) do you know what your business is worth?
The need to have a plan for life post closing is important for several reasons as we’ve previously discussed here and here.
But given the second topic discussed in this missive – should you believe the number – knowing what your business is worth is perhaps the most compelling matter in this post. Without knowing the value of your business will almost guarantee that you will leave money on the table.
Why? Because if you don’t know what your business is worth, you can be pretty sure that a legitimate buyer does – a condition that shifts leverage away from the business owner and on to the buyer.
The Bottom Line
In every one of the above instances, the caller may actually be legitimate; a vendor or customer, for example, or a business broker or investment group engaged in a roll-up in your business’ industry or channel.
Legitimate inquiries can come from private investment groups, family offices or high net-worth individuals experienced in your industry. The call can also come from us – business brokers that have been hired by a legitimate buyer to find acquisition targets that fit the buyer’s criteria.
Remember that receiving an unsolicited offer is not at all unusual. It happened to me in the 1990s. The best way to handle such an event is to be prepared at all times. Keep your books straight. Make sure your paperwork and other documentation is organized. Think through what you’d like your life to look like after the sale.
But possibly the most important aspect of being able to respond intelligently to an unsolicited offer – and increasing the likelihood that you receive the value of what you’ve spent years building when selling your business – is to know what your business is worth.
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 approached by a search fund looking for opportunities to acquire businesses in the financial services, health and wellness, and healthcare industries with revenue between $5-$30 million and EBITDA of at least $2 million based in Southeast, Mountain West of Left Coast regions of the U.S.
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