The buy/sell transaction today is no place for timid souls or faint hearts. Without a professional approach, you can leave lots of money at the negotiating table and create a legal nightmare. Here are six steps which I recommend that business sellers follow:
Form Your Team
It all starts with teamwork. You need to form your team. You need your attorney and your accountant. You may need your banker. Ask them to help you find a business broker. After this team is fully assembled, follow their advice.
Today, selling a business is so specialized that even the best attorney, accountant or real estate broker is no substitute for the savvy business broker who knows where the business buyers are.
The first team task will be to price your business. Be sure to realize that your attorney and accountant have a vested interest in not losing your account and that your broker may think you just want to hear a high price.
I'd like to think that the broker would tell you the truth on price. But, sellers have a well deserved reputation for shooting the messengers who bring bad news.
Price It Right
Some brokers just can't bring themselves to tell you that your price is too high. Don't shoot your broker for bringing you the "wrong" price and don't choose your broker on the basis of which one quotes you the highest listing price. You need to price your business realistically.
Your tendency will be to overprice your business. When you do, the time it takes to sell just stretches out to the point where it is mighty shopworn merchandise by the time it finally sells … if it sells.
Nothing raises the doubts of a prospective buyer more than to find out you've been trying to sell for a long time.
If the broker you choose can't appraise your business, or your team members all disagree on the subject of price and terms, consider hiring a separate and independent business appraiser. A good appraisal is expensive, but it is worth it if your team can't agree on the asking price.
Some business brokers or appraisers offer an inexpensive appraisal. But, a full-fledged business appraisal costs upward of $2,000, so don't expect a good written appraisal for less. For a larger company, one can easily cost $10,000.
But, you may not need an appraisal at all if your team agrees on where to set the asking price.
Prepare a Package
Comprehensive documentation from a buyer's perspective is essential today. That means you have to develop a convincing package to present your business.
Today's buyer prospects are different from those of even just a few years ago. The computerization of the workplace has had a major impact. Most buyers today are "numbers crunchers".
Buyer prospects expect that you will have accurate and current financial reports and that you will provide a detailed analysis of your business and the markets it serves.
Today's buyers also expect you to be able to justify your price and terms of sale based upon their understanding of normal investment returns.
Why so complicated? Well, keep in mind that today's buyer prospects are typically middle aged and from corporate middle management. They use hand held calculators and laptop computers! They expect to have a lot of information at their fingertips. They are uncomfortable when the business records are messy or incomplete.
You also have to compete for your buyer prospect's attention against an ever-increasing number of sophisticated brokers trying to sell other types of investments.
After your marketing package is complete, you'll know what kind of buyer you need. You'll know how much cash they must have to make it work. Your broker should then set up a process to target and qualify buyer prospects.
Don't rush too quickly, however, to consider everyone a prospect. There are still people out there - even people with money - who think they can buy your business for no money down! Laughable, but true!
If you don't have a process to qualify prospects, you may find yourself dealing with these 'no money down' tire-kickers, spending lots of your precious time and resources trying to sell them your business. Desire to buy is not proof of a prospect's ability to buy.
Brainstorm with your team about how to identify these people or companies. Have your broker call them. Your broker should be telling them, up-front, what kind of cash will be required. Your broker is also responsible for determining if they have it, and for finding out where it will come from.
It is tempting, especially if you think there is too little buyer prospect action, to lower your standards and talk to everyone who comes along. Don't.
If you decide to advertise your business for sale, use common sense. Fewer than 5% of the general population are prospective business buyers, so focus only on the established 'business for sale' advertising venues that this 5% is following. Don't expect your broker to run a massive ad campaign. It isn't required. Ads should be tested carefully and slowly. They should be 'blind ads' where the identity of the company is camouflaged. Otherwise, you run the risk of over-exposing your business.
People are naive and think businesses sell as fast as houses. When you're still on the market six months later, they'll conclude that something's wrong with your business if it still hasn't sold. Better to keep your marketing effort confidential except to strictly qualified prospects. Your broker knows how to do this. Expect that it may take as long as a year - or even longer - to sell.
When you get an interested and qualified prospect, plan your negotiation strategy carefully. Remember that your goal is to sell, and not to beat the buyer at some negotiation game. You and the buyer should now lay the foundation for a team effort to get to a closing.
Don't allow yourself to get bogged down in disputes with your buyer. Don't allow your ego to distract you from satisfying your underlying need to sell.
Work with your buyer as an ally. Focus on interests, not on positions. Generate a variety of solutions before deciding what to do about any particular problem.
Try to resolve the toughest issues with objective criteria or independent standards.
Be sure your business broker stays in the middle to serve as your safety valve and to help you avoid unnecessary disputes.
Wrap It Up Quickly
Finally, get to the church on time! Don't delay the negotiation or the eventual closing.
Even the best buyer prospects can change their minds overnight. After the buyer prospect makes a commitment to buy, get it in writing and get a good sized, non-refundable earnest money deposit. After the initial agreement is signed, close as soon as possible.
Your business isn't sold until it's sold. Make sure the check clears before you set the plans in motion for that well-deserved vacation.