When is the Right Time to Sell My Business?
Deciding when to sell your business is one of the hardest decisions you’ll make as an entrepreneur. Hopefully this guide will crystallise your thought process..
Thoughts of selling your business can be motivated by a range of factors, some of which may be out of your control. They can include ill health, divorce, a need to liquidate assets or realise a new strategic path, boredom or even becoming overwhelmed.
Regardless of your motivation, the timing of your sale can really influence the price. Sale price typically reflects past performance and profits, so taking this into account may help you reach a decision on when to put your business on the market.
Following declining profits and performance
This is the most challenging time for a business owner. Perhaps seeing a slump in performance has drained your motivation and energy and you simply don’t have any fuel left in the tank to build the business up again.
Sadly, this is all too common with burnt-out business owners. The trouble is, a decline in profits and performance will also mean a lower sales price.
If your business is at this stage, you need to ask yourself if you can keep it running and increase profits, ensuring a better sale price in the future.
Perhaps a new competitive threat means you will be unlikely to recover. If this is the case, you need to objectively assess the likelihood of restoring the business to its previous heights – and valuation – versus the risk of things deteriorating further still. Do you stick or twist?
Ask yourself: Can I keep it running and the profits growing to get a better valuation price?
Amid sustained performance levels with slight profit variation
With this scenario, a business sale price can be based on the previous three to five years’ average profits, as a potential buyer can see that the business has performed consistently over a sustained period of time.
The trick here is not to be lulled into false security. Once that ‘For sale’ sign is up, it’s important to maintain momentum.
The selling process may take a while. You don’t want to lose your sale price advantage because you think the finish line is in sight and you take your foot off the gas prior to completion.
Rising performance and climbing profits
A growth business will always sell quicker and at a better price because astute investors are ready to take advantage of future market success.
However, few business owners want to sell when business is booming. They find themselves enjoying the fruit of their hard labour and are keen for it to continue.
Yet as buyers will pay more for rising profits, a period of growth is always a time to check in with yourself on why you love owning and running a business.
Would you be as motivated when faced with falling profits?
Profit and performance impact on how your business is valued so taking this into account vital.
In addition to profit and performance, there may be other reasons why you’re considering selling up.
You’re simply not enjoying the business anymore
As a business grows, entrepreneurial challenges that were once exciting motivators are often replaced by more administrative or human resource-related challenges.
If the tedium of admin isn’t for you, perhaps it’s time to prepare for your exit.
The selling process may take a while. You don’t want to lose your sale price advantage because you think the finish line is in sight and you take your foot off the gas prior to completion.
Your business has outgrown your skills
This is a tough one to face, but business ownership and leadership also requires humility. Is it time to sell your business to someone who can take it to the next level?
Threats on the horizon
Perhaps you can see a threat looming that will have an impact on profits and performance.
If you’re a boutique hotel owner, perhaps AirBnB is starting to concern you. Think of Blockbuster videos, unable to be nimble enough to fight off the challenge of Netflix and Stan.
A lucrative opportunity
A business exit strategy can also be motivated by opportunity.
Perhaps you’re a fast, innovative, social media site that has Facebook knocking. Honesty and humility are important here: you may want to be a multi-million-dollar acquisition, but do you have the skills to get to that level? A million-dollar offer may be worth considering.
Regardless of your reason for selling, one thing is clear: it’s never too soon to create an exit strategy and start preparing your business for sale. Having a plan in place means you’ll be ready to take advantage of any situation you see on the horizon.
How to Get Your Business in Top Shape to Sell
How long do you think it will take you to sell your business? Well, we can tell you: longer than you think!
The average time a small business remains on the market is 6-8 months (though this can change dramatically depending on what’s on offer and different deal structures) but any expert will tell you that preparing to sell a business should be a process that takes years rather than months.
However, whatever situation you are in, it’s vital that you don’t let your emotions take over: acting too hastily or hanging on too long can have a seriously negative impact on your final sale price.
Andrew Weaver, CEO at Lawyer Fair agrees,
‘Business owners often under estimate the time required to sell their business and remember, we're not talking about just sticking it up on BusinessesForSale.com and hoping for the best - we're talking about preparing the business properly before going to market, and then ensuring you get the right buyer, with the right incentives to complete.’
Indeed, it’s worth assuming that from the day you get the keys for your new business, you should be thinking about making it into a really saleable commodity.
Whatever you do, don’t wait until you’re ready to retire or the day-to-day running of the business has become too much. It’s a dispassionate market out there, and if you have let your business go a little under the burden of illness or advancing years, you will simply be attracting the attention of ruthless buyers.
And remember – a business that is fit to sell is not only a draw to potential buyers; the actual process of making it saleable is an excellent way to run a business.
So, even if selling is not on the cards right now, if you keep the following checklist at the heart of your business practices, you will have a ready to go and water tight exit strategy:
Make yourself dispensable
Yes – that’s right. You may feel that your business would be nothing without you – but do you want a buyer to think the same?
Before you think about going on the market, make sure you document anything you think will help the new owner. They will want to take up the reins quickly and smoothly so it’s vital that you can show that the business can run well without your specific input.
This means having a strong team, clear and efficient business procedures, good lines of communication (between existing staff and with customers), successful marketing strategies and a solid business model that can accommodate a new owner. Weaver puts it succinctly:
‘Buyers don't want to pay for a business where the value departs when you do.’- Andrew Weaver, CEO at Lawyer Fair
Get your books in order
You want your business to be as attractive as possible when buyers emerge so ensure any overdue contracts are signed, employee disputes settled and new leases agreed.
‘Trying to solve problems when a buyer is interested is likely to cause concern with the buyer and/or delay with the deal. Time kills deals. Do some up front due diligence and clear out any skeletons.’ Says Weaver
Regardless of whether it is a share sale or an asset sale, in order to make your business as attractive as possible to a buyer, the first step is to make sure you should have in place:
- Employment contracts with your employees
- Contracts with any other staff (e.g. casual workers and self-employed consultants) and
- A basic staff handbook, containing the key policies and procedures relating to your business all of which should satisfy the minimum legal requirements.
On a broader level, streamlining your financials is something you should look at way before going to market. Make sure you apply a critical eye to all outgoing expenses and determine actual value versus cost.
Continue to keep your records up to date, and don’t let things slide in the final year or months of your tenure.
And when you are getting close to selling it’s worth getting an audit for the past few years. This might cost a bit, but will be invaluable in reassuring any buyers that you have a decent profit history.
Maung Aye, a partner at law firm Mackerell Turner Garrett, who specialises in business acquisitions, also advocates ensuring that the vital elements of your business are still on offer to any buyer:
‘You need to ensure that your company has protected its valuable assets – for example, a company which has a trademark or patent protecting a vitally important piece of intellectual property is going to be far more valuable than a company who has no protection at all.’
Stand out from the crowd
What you should be asking yourself is ‘Why would someone buy my business?’ You need to be able to differentiate it from all other similar business and ensure its stands out if it is going to be noticed.
‘You should think about what is unique about your business that would make a buyer really want to purchase it. It may have created a valuable piece of intellectual property or be a recognised leader in its field. This is the best way to ensure you get a top price for your business.’ says Aye
Some would even go as far to say that you ought to specialise to a niche before you sell. Consider cutting some products or services that are superfluous to the nature of your business. Making your business really good at one thing or being king of a certain corner of the market is the key to a successful USP.
Understand what deal structure works best for you
Getting to grips with potential deal structures is worth doing early on in your sale preparations. In doing so, you will reveal aspects of your business that may need some attention or development:
‘It's impossible to predict in advance of going to market exactly what your buyer will look like, let alone the nuanced terms of your deal but, you need to understand the tax implications of different deal structures so you're negotiating from a position of knowledge.’- Andrew Weaver, CEO at Lawyer Fair
Firstly, you need to be very clear about what you will be selling – i.e. your business or its assets? It’s an important distinction as If your buyer purchases the business in its entirety, they inherit it warts and all – the assets as well as the liabilities. In this case they’ll want to alleviate risk as much as they can by undertaking their own due diligence process.
In terms of tax liability, sellers may pay less tax on profits from the sale of the business as a whole, rather than from an asset sale so it’s vital to get professional advice from the start to make sure your best interests are served.
You will also need to consider staffing issues. Under UK law (TUPE) the current owners’ obligations to existing employees may have to be inherited by the new owner so cultivating hard working and amenable staff will alleviate any buyer concerns in this area.
Other issues up for discussion are the handover period (do you want to cut the cord immediately or stay for a transition period?) and payment options including cash completion or a settlement of shares in the new company.
And make sure you are aware of alternative funding options for the sale of your business: if you are in a tight spot or need a deal fast this may enable you to get a better price or secure an agreement that may otherwise have been hard to get. You could finance the deal yourself and offer your buyer the agreed price with an interest payment schedule or offer the deal in deferred payments which will enable the buyer to raise finance over a longer period than usual.
Get third party consent
Finally (and this really is the last stage of preparations!) don't get into a position where completion of your deal is reliant on landlord or supplier approval.
Make sure you have these areas covered before you go on the market. If you are running around at the last minute trying to secure consent for the transition, you could waste valuable time and cause the deal to fracture and/or an unscrupulous third party to extract some incentive for agreeing to help.
It’s pretty clear that prescience is key in preparing a business for sale. As Andrew Weaver says,
‘The length of time it takes to sell does depend a little on your sector but expect it to take no less than 6 months and probably best to allow 9-12 months from the launch of your sale campaign to completion. Add to that the time required for preparation and you'll see why you need to plan your exit carefully and in good time. A well prepared exit strategy can have a massive impact on the terms of your sale.’
So, ask yourself – are you really ready to sell?
How to Value Your Business and Understand It's Worth
'Valuing a business is an art, not a science!’ This statement has almost become a mantra in the corporate world. Why? Because every business is different.
While there are some standard approaches to working out worth, their effectiveness and relevance varies greatly depending on the unique structure and assets (tangible and intangible) of the individual enterprise under scrutiny.
The first hurdle to get over is your own emotional bias. You have most likely poured years of sweat and tears into your business. It may have been in the family for generations. You may even think of it as your ‘baby’. Putting a price tag on something you love is really hard – which is why it’s vital to call in the professionals when it comes to valuation.
Hire your own financial advisor to help you work out what your business is really worth.
Once you have decided to sell, the buyer’s own broker, legal and financial advisors will be guiding them through the steps it takes to discover if your sale price reflects true value. This ‘due diligence’ process is unavoidable, which is why it’s always good to have an idea of the value of your business throughout its life. This will be key to knowing when it might be the right time to sell and getting the best price you can.
Checking what other businesses are selling for in the current market is worthwhile, but more vital is being well aware of your own profit and loss statement,
‘A healthy balance sheet and favourable market conditions are two key indicators that now might be a good time to sell.’- Andy Cagnetta, CEO at Transworld Business Brokers
When you’ve made that all important decision, the formal valuation process is usually approached from three different angles: asset, income and market. Here, we look at these different methods and the variables that must also be considered:
The asset approach
In this case, all the businesses assets are added up and depreciated accordingly. Tangible assets (we’ll get to intangibles later) can include the physical property, furniture and equipment as well as valuable intellectual property like patents, trademarks or incorporation documents.
Of course, this method ignores the value tied up in potential earnings and is usually only used in exclusion for liquidations or non-thriving businesses.
The income approach
This approach involves the calculation of the current net value of the business’ income. A projection is made in relation to future cash flows and discounted (based on the age of the business and future earnings instability) to determine their present value.
A variation of this approach is in finding the businesses’ EBITDA (Earnings Before interest, Tax, Depreciation and Amortization) and multiplying this figure by a certain factor.
An SME is often valued at between two and four times its cash flow – worked out as EBITDA plus the current owner’s elective salary and benefits. This offers a rough guide to a company's profitability and its subsequent ability to repay interest or debts.
Considering that up to 80 percent of a business' purchase price is usually financed, potential buyers will want to assess how well the cash flow will support the debt repayment whilst also offering a good ROI (Return On Investment) and a decent salary.
The market approach
This is the most subjective approach of the three. It doesn’t try to project cash flow or potential rate of return but instead offers an estimate of a business’ earning potential based on current market demand. Worth is determined by the evaluation of other similar businesses that have already sold and comparing the sales price to metrics such as revenue or earnings.
In reality each method has its pitfalls and of course advantages. For example, occasionally online businesses look like they have little or no value in terms of assets but their future value can be significant.
It isn’t entirely unusual for e-commerce businesses to sell several thousand pounds at the early stage when there is only really a domain name and some intellectual property for sale.
The key is always for the buyer to work closely with their accountant to understand the value of the business whether it is in future development or indeed if the business has a considerable amount of traction already as one would see in traditional retail businesses.
Of course, most business valuations involve a mixture of all of these approaches with a number of variables thrown in. We spoke to an expert in the art of valuation, Andy Cagnetta, CEO at Transworld Business Brokers on what they might be:
What creates value in a business, beyond assets and liabilities?
‘For me the bottom line is the bottom line. Profits trump everything in valuation. I could care less about assets if they don't drive profits. So it is incredibly important to know the value drivers...like intangibles. It could be location, price, products, vendors, customer mix, name, website, marketing, niche....it could be a combination of them all, like a good recipe. Leave one ingredient out of a good cake and it will fall flat.’
Aside from the standard valuation approaches, what really makes a business valuable to a potential buyer?
'What would you rather own - a landscaping business that makes £500,000 where you have to wake up at 4am, run five crews of blue collar workers with issues like weather, equipment failure, tardiness, labor shortages, etc....or a distribution business that makes £500,000 that is open Monday to Friday, 9-5, has four office workers, low inventory, and a niche clientele.'
‘The easier it is for a new owner to acquire the business and continue the earnings stream, the more valuable the business.’- Andrew Markou, CEO of BusinessesForSale.com.
What do you make of the many online business valuators that are available today?
'I wouldn't rely on a website to predict what a business would sell for, but then again a £25,000 valuation may not get you close either. I guess that is why they say business valuation is an art not a science. It’s hard to have a computer spit out art...although that day is getting closer to reality.'
It seems that valuing a business does indeed require a creative and subjective eye, whatever scientific approaches have been applied. But the ‘bottom line’ remains the same: the easier it is for a buyer to purchase the business and continue making money, the more valuable the business.
Beauty in business, as in art itself, is in the eye of the beholder.
The Due Diligence Process When Selling Your Business
Due diligence uncovers some of the hidden aspects of the business, and poor preparation could cost you dearly. Discover how to maintain buyer confidence, and get the best possible deal.
This is the stage in the selling process where the vendor will have to open up their business to close scrutiny. However well negotiations have been going, any hidden skeletons in the closet are liable to jump out and scare your buyer off.
Parker also advocates the need for complete disclosure:
‘This is not the time to posture and negotiate about what information you are, or are not prepared to provide. If a seller makes this stage transparent, the odds of getting the deal close will rise exponentially.’
Before entering the due diligence phase a seller should ask their potential buyer for a comprehensive list of documents and aspects of the business that they want to have access to.
Andrew Weaver, CEO at Lawyer Fair goes a step further and suggests creating a ‘seller’s pack‘ that addresses any issues that might arise. He calls this ‘upfront DD’ and also insists that hiring seasoned legal professionals from the outset is key to success.
‘Those with experience have a much greater chance of seeing risk at an early stage and addressing it before it becomes a deal breaker.’- Andrew Weaver, CEO at Lawyer Fair
Rob Goddard, CEO at leading business intermediaries, Evolution CBS, agrees:
‘Always, always use an experienced M&A lawyer. They are there to represent and protect you but you must disclose any sensitive issues. There’s unlikely to be anything that an experienced lawyer hasn’t dealt with before so choose your advisers with care but don’t try to hide information – it will come out so it’s better to be proactive.’
If there’s anything that a seller feels they shouldn’t have to disclose, they will need a valid reason.
It’s worth remembering that this is the final hurdle for a buyer and if they are asking to see something that might not present a business in its best light - it would be far better for a seller to prepare some positive spin on this issue, rather than leave an air of ambiguity that will cool a buyer’s enthusiasm.
Legal, financial and commercial
There are generally three strands of due diligence; legal, financial and commercial. A seller needs to focus on all these three areas to ensure that they will stand up to scrutiny from buyers.
Firstly, a buyer will want to look at the financials – not just statutory accounts but also forecasts, budgets, and monthly management accounts. It’s important for a seller to minimise perceived risk so they must make sure to be fully conversant with the figures as well as being able to explain with confidence how the forecasts will be met.
A seller will also be asked for employee, client and supplier contracts, shareholder agreements, asset registers and a lot more. If you’re prepared and have all this ready in advance you will significantly reduce the time and costs associated with due diligence.
Weaver points out that different businesses require different types of due diligence:
‘Companies where the value is in the contracts will clearly need to have their contracts scrutinised closely. Companies where the value is in the IP will require a thorough examination of licences and trademarks.’
The key focus should be on what the buyer is paying their money for and where the danger of that value disappearing might lie:
‘If it's a share purchase then the buyer inherits the company, warts and all. This means that every liability on that balance sheet will become the buyers and so, quite rightly, their advisors will scrutinise the health of the company very carefully and address the potential of any liabilities emerging in the future. This can be boxed off via warranties and guarantees but, it's a delicate area of negotiation and is often the downfall of a deal.’says Weaver.
Put yourself in the buyer's shoes
Despite the need for transparency, there are often buyer requests that a seller will be reluctant to grant – these usually involve demands to speak to employees, customers or suppliers.
Richard Parker advises sellers to put themselves in the buyer’s shoes:
‘Consider whether or not it would be something you would want to review if you were the buyer. If the answer is “yes", then you have to allow it. For example, if you have a limited number of clients that contribute a disproportionate amount of the revenue, the buyer needs to be assured that this relationship will endure after the sale. If they cannot meet the clients, it will invite a performance laden deal which could hurt the seller.’
However, Maung Aye, a partner at international law firm, Mackerell Turner Garrett, who specialises in business acquisitions, advises sellers to protect themselves against the leaking of confidential information:
‘Before any due diligence starts, a seller should consider entering in to a non-disclosure agreement with the prospective buyer. This is important to ensure that the buyer does not divulge any sensitive information it obtains to anyone other than its professional advisors.’
Another way to protect sensitive information is to only allow the buyer access to the seller’s management team or certain key, senior members of staff. The seller will also need to ensure its management team’s contracts of employment contain appropriate confidentiality provisions.
There are a number of ways for you to present the buyer without jeopardizing confidentiality. Meeting with suppliers or customers can sometimes be accomplished by the buyer accompanying the business owner as a ‘salesperson in training’. For employee issues, it is only necessary for the buyer to meet key personnel who have to remain with the company after a sale in the buyer's mind. Here too you can introduce the buyer as either an outside consultant, or potential investor, or as a candidate to open a second location.
Avoid deal fatigue
A key factor in a successful due diligence process and resultant deal, seems to be early preparation on the part of the seller. Rob Goddard warns against what he calls ‘deal fatigue’,
‘Poor preparation is often the cause. If key information and documentation, such as contracts or accounts, aren’t readily available or either party doesn’t respond to queries in a reasonable time the period of due diligence will take longer (and cost more), making deal fatigue more likely.’
And sellers must try to avoid surprising their potential buyers with previously undisclosed issues:
‘An example might be a legal claim that has lain dormant for a while, a customer complaint ignored and now escalated. This causes the buyer to question other information and destroys trust’ says Goddard
Due diligence is an unavoidable hurdle in the sale of any business and it pays to pre-empt any potential problems. Always remember that surprises can also come from the buyer – like deciding to focus on a different acquisition and defer yours!
Be as honest as possible throughout the process, hire professionals and protect the integrity of your business, and, as a seller – you will have done all you can to expedite a happy outcome for all.
Five Key Skills for Negotiating the Sale of Your Business
Negotiating the sale of your business is something that takes finesse and sensitivity, as well as grit. Here, we reveal the dos and don’ts and how to reach a mutually agreeable conclusion.
Negotiating the sale of a business is a process that requires sensitivity and common sense as well as some steely determination. Whilst everyone’s approach will be different, there are some definite dos and don’ts.
In order to achieve that all-important handshake, make sure you use these 5 key negotiation skills:
There’s nothing like the human touch. Having received a serious enquiry about your business, it’s good form to touch base informally with your potential buyer before negotiations start.
Whilst you will certainly have to call in the legal professionals to iron out the deal at the due-diligence stage of the selling process, your first contact with a buyer should cover core terms and your overall goals.
At this stage, you may both have a ‘ballpark’ figure in mind for the sale price, but the the final amount will only be thrashed out after all investigations have taken place, and both parties are content with what’s on the table.
Right now, other economic and procedural terms that form the basis for further negotiations are more important, including any possible seller take-back, protocol if either party wants to pull out before the transition period is over and the working capital that will exist in the business at the point of sale.
Listen closely to what your potential buyer is saying: your ears, not your ego should be put to use at this stage. By asking a lot of questions, you will discover what this buyer really wants out of the deal and, crucially, a clear idea of what you can and can’t control.
Ultimately, if you are well aware of your buyer’s desires, you can proceed more constructively.
2) Careful honesty
Transparency is obviously an important factor for any buyer; they will want to feel assured that the condition and potential of your business is what you say it is.
Remember, however, that how you present the facts can be as important as the facts themselves. Rob Goddard, CEO at Evolution Complete Business Sales advises a cautious approach:
‘The initial meeting with potential buyers is key; mistakes at this stage are hard to rectify and generally result in failure. There is a real skill at disclosing all salient facts, especially the tricky ones, without losing the attraction of the business for sale.’
Exercising a little control is also a good idea: remember – the more you say, the more you give away.
‘I always advise clients that wisdom is the best policy. Everything you say must be truthful, but you don’t need to say everything.’- Rob Goddard, CEO at Evolution Complete Business Sales
Goddard adds that too much disclosure can lead leave you with less leverage in the long run:
‘I was once dealing with some sellers who shared their post-sale plans with the buyers. They were going to move to another continent within 6 months of selling the business and start a new life with their family. The result: the buyer held up negotiations until the very last minute and offered a reduced price. In this particular case the buyer had no choice but to accept!’
Always be aware of the fine line that exists between reassuring your buyer that you are offering a bona fide opportunity, and giving them the upper hand.
Compromise is at the heart of every business sale, so, as a seller, you must be prepared to bend on certain issues:
‘Being inflexible and losing sight of the overall agreement when deadlock is reached over minor issues is a sure way to lose a sale.’ says Jason
Using an intermediary when the finer details of a sale are being negotiated is essential:
‘It’s the job of a good broker to manage the process diplomatically and guide both parties through the process, while educating them and keeping their expectations or perceptions within the boundaries of the other party and the structure for which the broker believes the best outcome will be attained.’
When it comes to sale price, having a plan A, B and C in your mind is a good idea. A is the best price you could hope for. B is a compromise, but workable. C is when you walk away.
If your buyer negotiates you down to B, you are still in a good position: you have allowed them to feel empowered and you’ll likely now have a little leverage on other assets and aspects of the deal.
Remember that you are both trying to find the right ‘fit’ and this will involve plenty of shifting positions. Panicking or getting impatient will not help the process.
4) Self confidence
This is about knowing your worth. If you aren’t passionate about your business, you can’t expect a buyer to be. Think about how expand you were about this enterprise when you started out and how far it’s come. Take this energy into the negotiating room.
Have all your business’ best assets on the tip of your tongue and ask yourself what, in particular, would be of interest to this buyer.
It may be tempting, but don’t make promises you can’t keep and be very wary of offering too much of a discount just to make the sale.
On the other hand, If the buyer has agreed to the full asking price, don’t get over-zealous and promise things in terms of stock and timings that won’t be achievable.
And never allow yourself to get into a situation where you can’t approach alternative buyers:
‘Granting a buyer exclusivity at the first meeting is another common mistake and one that your advisors will not let you make. I am aware of one meeting where a highly experienced buyer, as he was about to leave a very positive first meeting, asked the seller for a handshake on the deal. The seller didn’t hear properly and unwittingly led the buyer into thinking he had agreed exclusivity, on the shaking of hands.’says Goddard.
When time is of the essence and you want to convince a buyer that your business is better than any other on the market, it will be hard not to let your inner salesman out.
However, the art of negotiation is not an exercise in salesmanship: it has to be a balanced discussion. Think Kofi Annan, not Del-Boy Trotter.
Going for a classic sales pitch may well put your buyer off. Instead rattling off all your business’ assets, try a more measured approach: ‘This is what we do and what we can offer. How might that work for you?’
And, if you are confident in the opportunity you are offering, stand firm and don’t give in to nerves.
There’s a lot more to the art of selling a business than slapping on a ‘for sale’ sign and hoping for the best. Brush up on these five key negotiating skills and you will be well on the way to selling your business.
Should You Sell on Your Own or Use a Broker?
When it comes to selling a business, there are pros and cons to do-it-yourself (DIY) versus using a business broker.
Primarily, choosing to DIY means you will, by necessity, take your eyes off running the business.
If your business doesn’t sell quickly – or at all – you not only will have lost focus on running your business, you may miss out on important opportunities, especially those connected to keeping performance and profits healthy.
Not all business brokers are created equal. It’s worth conducting your own research and due diligence before appointing a business broker.
Ask your business networks and industry associations to recommend a business broker.
What’s the broker’s marketing strategy?
Ask for a detailed plan that a broker will action to advertise the business, solicit buyers and achieve visibility.
If their strategy is simply to write an online listing, then there is only limited added value and you might consider doing it yourself.
Request copies of profiles they have developed for other clients. Expect detailed pros and cons of the business profiled.
What have been their other sales successes and failures?
Ask the broker for the names of at least 10 sellers with whom they have worked and contact them.
If an owner will give you a positive review of a broker regardless of whether the business was sold or not, it speaks volumes about the broker's ability and ethics.
What do they ask in their first meeting with you?
A ‘churn and burn’ broker is the one who will pressure you to sign up for a listing in your first meeting.
Don’t fall for it. Lots of listings do not a great business broker make.
Instead, expect to be asked lots of questions about the business you are selling. You want a broker whose primary agenda is to learn about your business, because then he or she will be best equipped to sell it.
Asking you good questions in an effort to get to know the ins and outs of your business is a great sign, as is a willingness to invest time with you in follow-up meetings.
Also, they should be presenting questions to you that a buyer will ask.
You want them to honestly express whether or not they feel your business can be sold.
The value in an intermediary
Using a broker can make a deal flow better and ease communication – especially if you need to take a firm stance, because it means you have someone else in your corner to deliver any bad news.
However, too much intercession can work against you when negotiating a sale, so don’t be afraid to mix broker communications with DIY.
To get any buyer comfortable enough to make an offer, they need all their questions answered and will seek assurances that you will be there for an effective transition period.
The more confidence and trust you can instil in the buyer, the greater your chances of making the sale.
It’s hard to build this credibility through a third-party broker alone, so make sure you involve yourself in important communications.
Other questions and points to consider
- How much are you willing to pay for the services of a business broker?
- Will you feel a lack control over the process if you are used to doing everything yourself?
- A broker may pressure you to accept a contract you're not happy with
- A broker may pressure you to accept a lower price so they can get their fee, which is usually a percentage of the sale price, rather than risking the deal falling through
- How many clients is the broker currently working with? Do they have time to properly represent your business?
- Find out how to negotiate successfully
Once you’ve decided whether to appoint a business broker or go it alone, it’s time to prepare your business for sale.