Selling your business is a one-time event which therefore commands the highest degree of professionalism, decision making, and strategy. The successful sale of your business is not guaranteed. In fact, statistics show that only 20% of those that want to sell their businesses are successful. There are a multitude of reasons why business owners arrive at a point when they desire to sell their business. It is both a challenging time and an exciting time. We suggest you work with a team of professionals including your accountant, attorney, financial advisor, insurance agent, and intermediary.
Challenges to Selling Your Business by Yourself
- Determining the most accurate value for the business
- Marketing the business to a vast audience of buyers while simultaneously maintaining confidentiality from customers and employees that the business is for sale.
- Expertise in structuring the deal to take advantage of existing tax laws
- Determining methods of financing the business
- Preparation of documents including the Standard Asset Purchase Agreement, Representations, Warranties, and Indemnifications.
- Negotiating the optimum price and terms
- Remaining objective
All of these are significant challenges to business owners that are attempting to sell their business while simultaneously continuing to run it. This becomes even more challenging considering the average time to professionally market and consummate a business sale can take up to a year or more.
The Process of Selling a Business
The first step in the process of selling a business is to obtain a myriad of data from the subject company. Financial statements are recast to show an accurate picture of the earnings of the business and a valuation and confidential business memorandum is prepared. After this foundation work is completed an active search and marketing effort begins which includes local and national proprietary databases, relationship networking, and contacting strategic and financial buyers. Interested parties must first sign confidentiality agreements prior to learning the details about the business. Interested buyers are qualified and then invited to tour the business.
When an interested party tenders a contract or Letter of Intent, negotiations are entered into, and agreements are signed subject to contingencies. Contingencies can include lease assignments, loan approvals, verification of financial books and records, franchisor approvals or other items necessary for the buyer to successfully operate the business.
Once all contingencies have been removed, closing documents are drawn up, inventory is taken, and all assets/obligations are transferred from the seller to the buyer.
The Role of the Business Intermediary
- Intermediaries provide confidentiality. This is key when you don’t want your customers, vendors, and employees knowing that your business is for sale.
- Identifying the most profitable and effective exit strategy.
- Creation of an effective and compelling marketing package.
- Execution of an effective marketing strategy.
- Educates both parties through the process.
- Aids in the negotiation of crucial elements thereby protecting the relationship of the buyer and seller.
- Provides market data and field experience in forming an accurate valuation.
In a survey conducted by Smith Bucklin and Associates, it was found that the use of an intermediary provided sellers with 90% reduced stress, 90% more confidentiality, and an increased price in 90% of the cases. In fact, forty percent of the respondents stated that the use of an intermediary increased the sale price of their business by 20%.