Eight Tips for Selling a Business

by Terry Stidham

1. Have a Realistic Expectation of Value:  

Many merger and acquisition advisors or brokers just can't bring themselves to tell their clients that their business is overpriced. Don't shoot your M&A advisor for valuing your business realistically and don't choose an advisor on the basis of which one values your business at the highest price just so that they can get a listing. The price (valuation) of your business needs to be realistic. The best way to accomplish this is to have your business valued by a third party valuation expert knowledgeable in the market forces that shape the business valuation. Businesses that use a third party business valuation are much more likely to sell because they have a realistic idea what the business is worth. Historically those who do not use an advisor combined with a third party business valuation service have less than a 20% chance of selling a business at all.

 

Having unrealistic expectations of value causes the business to take a longer time to sell or it may never sell at all. Additionally, a business that stays on the market for more than 18 months has an increased chance that employees, competitors, clients and other parties will learn that the business is on the blocks. Such information in the wrong hands could devastate the health of the business.  Furthermore, a business listed for sale for too long is often viewed by buyers as shopworn merchandise by the time if finally sells if it sells at all. Nothing raises the doubts of a prospective buyer more than to find out you've been trying to sell your business for a long time (18 months or longer).

 

Prior to marketing the business for sale have a professional business valuation performed, a credible and defensible business valuation will greatly solidify a true market value of a business. Depending on the type of a business being valued and the detail and length of a valuation the price can be anywhere from $2,000 to $8,500. The money spent on a good business valuation will more than pay for itself in the end.

 

2. Fixtures, Equipment & Facility:
You know what they say about first impressions. Buyers expect that all the equipment be routinely serviced and in good working condition. Prepare detailed list of equipment with model numbers and serial numbers, buyers may also want to have a third party inspections as well a formal valuation of the equipment and fixtures. Businesses with clean financials, good records, clean facility and premises and good and up to date equipment will receive good consideration by buyers.  Most buyers will likely deduct significant amount of deduction from the asking price if one or several areas of the business is not presentable or posse's short comings.

3. Have A Good Reason To Exit & Sell A Business: 

Buyers are always concerned about the reason for the sale of a business. They are afraid you may be selling a business because of a declining industry, the effects of globalization, competitor dominance or some undisclosed fact that may negatively effect and hurt the business in future years. Buyers want to hear a valid and logical reason for the sale. They also want to know that you can let go of the business at a fair price. Without a good reason for a sale, business buyers may assume the worst and either offer you a lower price (valuation) or just walk away.

 

4. Form An Advisory Team: 

To sell a business successfully you need to have the right group of experts. Start by searching for the services of a credible M&A advisor followed by an attorney with merger and acquisition transaction experience.  Your accountant will also need to be involved in some aspects of the business sale. Your merger and acquisition advisor will play the most critical role in the sale of your business therefore, they need to be qualified and experienced with mergers and acquisitions services, exit planning, business valuation and many other matters so you can achieve a predictable and successful outcome in the sale of your business.  Today, selling a business is so specialized it becomes imperative to engage the services of an advisor or investment banker. The best attorney or accountant is no substitute for a specialized and knowledgeable advisor who is experienced in all areas of selling businesses including business valuation, tax matters, deal structuring, problem solving and creative solutions.
 

5. Prepare a Solid Marketing Package (also known as an Offering Memorandum): 

A good and proper marketing package to sell a business is absolutely critical. Additionally, being prepared to answer questions during the buyers due diligence process takes extensive preparation. Anticipating the buyers due diligence, its best to prepare a detailed offering memorandum package to present to buyers when marketing your business for sale. If you have any items that you must have or are not willing to negotiate on then this would be the ideal time to declare it. 

 

6. Target Buyer Prospects:

After you have performed a thorough review and due diligence and prepared an offering memorandum you are ready to sell your business and look for buyers. You must educate yourself about the types of buyers that exist in the market place. After studying buyers you will have a better idea which buyer to seek out for your business:  a financial buyer, a corporate buyer, a private buyer or a strategic buyer. To assure that the buyer is qualified to buy and operate your business, you must learn how to carefully screen and qualify the buyer. Your advisor can set-up a process to target and qualify these prospects. Desire to buy is not proof of a buyer's ability to buy and operate a business successfully. Be very careful in the review and qualification of buyers. 

 

7. Negotiate Professionally: 

When you identify an interested and qualified buyer prospect, plan your negotiation strategy carefully. You and the advisor should carefully strategize on all of the negotiation points.  Give in slowly and carefully and always ask for a concession point in exchange from the buyer and his team of advisors. Have clear goals in mind to sell the business and do not get hung up on technicalities otherwise you will win the battle but lose the war. Don't get bogged down in disputes or become emotionally involved with the buyer. Don't allow your ego and pride to distract you from satisfying your underlying goal to sell your business. You do not need to become friends with the buyer, but understanding their circumstances and goals will help you negotiate better. Focus the negotiation on things that are common to you and the buyer. Spend time brainstorming numerous options with your advisor and you will likely come up with many solutions before deciding what to do about any particular problem. Begin by negotiating the easier points and then move to resolving the more difficult points.

 

8. Wrap-it-Up Quickly: 

Even the best buyer prospects can change their minds overnight. After the buyer prospect makes a commitment to buy your business, get an offer to purchase in writing and get a good-sized, non-refundable earnest money deposit. After the offer to purchase agreement is signed begin to negotiate the finer points and begin the process of drafting a definitive sales agreement along with all of the other closing documents and prepare to close on the business as soon as possible. Your business isn't sold until the money is in the bank.

 

Contact me today to discuss your exit strategies.

About the author:
Terry Stidham is the founder and principal of Target Search Group. He is a B2B Business Development Leader with extensive knowledge of the M&A process, combined with an in-depth understanding of the constantly changing global capital markets environment.  He has served as the head of entrepreneurial organizations as well as Fortune 500 companies.  He specializes with mid-market companies in a diverse array of industry sectors from service and manufacturing to technical and professional firms. 

Mr. Stidham speaks the language of both the seller and the buyer having vast experience on both sides of the transaction. He has been directly involved in the execution and successful closing of hundreds of investment banking and corporate finance transactions.  Mr. Stidham has been instrumental in aiding thousands of business owners prepare their businesses for eventual sale by teaching them how to maximize efficiencies in operations leading to significant increased cash flow.