Selling Your Privately Owned Business
There are 4 things you should know before you sell your business
1: Business sale process
2: Should you use a broker?
3: How we find buyers
4: How our brokers are paid
Business Sale Process
Selling a business is very different from selling a house. You cannot put a For Sale sign in front of your business and expect it to be sold within a few weeks. Selling your business in a confidential manner takes a tremendous amount of skill, and selling it for the maximum price requires having the proper marketing, knowing the right people, and negotiating the deal appropriately with buyers, bankers, and landlords. The national average for the amount of time it takes to sell a business is 9 months. The process of selling your business would look something like this:
- Business Valuation. The first step to selling a business is to determine the asking price. Overpricing your business not only lengthens the time your business sits on the market, but also scares away potential buyers since it is a danger sign to them that a business has sat on the market for too long. On the other hand, under-pricing your business only reduces the amount of cash you get. You need to price your business just right according to market conditions.
- Reconstruct Company Financials.Many business owners include personal expenses in their company books in attempt to reduce their tax liability. While having a low net income might be desirable during tax time, it is undesirable to potential buyers. It takes an experienced professional to reconstruct, or recast, your company financials to show the true Owner’s Discretionary Income.
- Marketing Packet.The next step is to create a professional marketing packet that shines the best light on your business. Buyers do not like surprises, and a well-prepared marketing packet can mean the difference between a buyer making an attractive offer and walking away. The marketing packets prepared by Advantage Commercial Brokers are often times 30 to 200 pages long.
- Contact Qualified Buyers. Once the preparation is done, we begin to contact our database of qualified buyers. We also market your business across the nation. It is not unusual for a buyer from out of State or out of country to purchase your business.
- Interview Buyers. All buyers are interviewed to ensure that they have the proper background, resources, and interest to acquire and run your business successfully. Many deals fall apart at the end because the buyers were not properly interviewed at the beginning. Advantage Commercial Brokers conduct an extensive interview on the qualifications of each buyer, so your time is not wasted by unqualified buyers.
- Sign Confidentiality Agreement. Before confidential information is disclosed to the buyers, they must sign a Confidentiality Agreement, commonly known as a Non-Disclosure Agreement (NDA). This agreement protects the seller in the event of litigation.
- Give Marketing Packet to Buyer. The buyer now has a chance to review the compiled marketing packet, which allows him or her to gain a general overview and understanding of the business.
- Seller and Buyer Meeting. If the buyer is interested after reading the marketing packet, the next step is for the seller and buyer to meet in person. The broker will be present at this meeting, coach the seller on what to say, and steer the conversation in the right path.
- Offer and counteroffer. The broker will help the buyer draft up an offer, which includes the following: price, terms, earnest money, financing, purchase price allocation, training, non-compete agreement, any franchise transfer fee, inventory, equipments, assignment, due diligence period, closing date, etc. The broker will present all offers to the seller, and facilitate the negotiation process to ensure that both parties get what they want.
- Due diligence. Once the offer is accepted, the buyer will begin the due diligence process. The broker will facilitate the process to provide the buyer with the information he or she needs, while ensuring that the employees do not know the business is for sale until the deal is closed.
- Negotiation with Landlord. Buyers might shy away from closing the deal if the landlord decides to give the buyer unfavorable terms. The brokers at Advantage Commercial Brokers have years of experience negotiating with landlords, which increases the chances that your business sells successfully.
- Negotiation with Franchisor (if applicable). In the instances that the business is a franchise, many procedures need to be dealt with, including the franchise transfer fee, training, franchise circular, and numerous forms. A good broker is essential in facilitating a complex transaction.
- Waiver of Contingencies. Once the due diligence period is over, the buyer signs a waiver of contingencies. After this point, the buyer cannot back out from the deal without forfeiting the earnest money.
- Closing at escrow. Having a good escrow agent is important because it will make closing a smooth, pleasant, and organized process. Having a good broker at closing is also important, because the broker can smooth out the process should emotions ever run high at the closing table.
Should You Use a Broker?
As you have seen, selling a business is a complex process that requires professional expertise. Many business owners that try to save money by selling the business themselves often end up spending all their energy selling the business, and losing focus on running the business. The business goes downhill without the focus and attention of the owner, which scares away potential buyers.
Some business owners know a friend that is a real estate agent, and ask the friend to sell the business for them. As you may know, real estate is a vast topic and contains many specialties. There are agents that only work with residential real estate, agents that only work with commercial real estate, and agents that only sell businesses.
Real estate agents that only sell businesses are known as business brokers. Here is a list of specialized knowledge and skills that is required of a good business broker:
- Business Valuation: the ability to price the business accurately.
- Recasting: analyze and reconstruct company financials to show the Owner’s Discretionary Income.
- Marketing: the ability to prepare a 30-200 page marketing packet on your business.
- Database of Qualified Buyers: having a list of qualified buyers in addition to contacting potential buyers across the nation.
- Interview Buyers: the ability to eliminate buyers that are not a good fit for your business, so you do not waste your time.
- Confidentiality: the ability to maintain confidentiality of your business sale during every step of the process.
- Draft Business Offers: the ability to draft letter of intents, and purchase & sale agreements to purchase businesses.
- Bank Contacts: knowing the right bankers and convincing them to finance the deal quickly.
- Landlord negotiation: the ability to negotiate with the landlord to make the deal happen.
- Negotiation with franchise (if applicable): facilitating the process with getting the franchise transferred.
- Facilitation at closing: ensuring that closing happens smoothly and that the buyer does not walk away from the closing table.
How We Find Buyers
Depending on the size and nature of your business, we utilize different marketing strategies to contact potential buyers. Here is a list of methods we utilize:
- Confidential direct mail “ALERT” letters to Registered Advantage Commercial Brokers Buyers from our extensive on-line database.
- Confidential direct mail “Tickler” letters to Targeted Synergistic Industry Buyers we seek out through various third party sources.
- Confidential direct mail “Listing” letters to Advantage Commercial Brokers Co-Brokers.
- Confidential “Blind Advertising”, as appropriate, in major newspapers, business and industry trade publication.
- Confidential Telephone Canvassing and follow-up with all Buyers, Co-brokers, Finders and Ad respondents.
- Confidential Insertion of your listing into our international wide network with all the major “Businesses for Sale” web sites.
How Our Brokers are Paid
Advantage Commercial Brokers is a success fee based company. What this means is that if the business is not sold, our business brokers do not get paid. This encourages our business brokers to work harder to get your business sold.
Your next step is to decide if you want to sell your business. We invite you to do one of two things:
- Free Business Valuation. Have a confidential meeting with a business broker to find out the value of your business in today’s market. There is no charge for this service, and you are not obligated in any way to use our services.
- Resource Library. Learn more about selling a business by exploring our resources library.