If you are contemplating the sale of your business, give yourself time to gather information and understand what actions you can take now to adequately prepare for this life-changing event. Many business owners underestimate the complexity of a business sale. After all, they understand their business but often have no real idea of what it is worth. They find a buyer, exchange funds, and, voilá! The deal is done.
Not so fast. Most FSBO’s, or For Sale By Owner, tend to either underestimate or grossly overestimate the value of their business. For those FSBOs who had no trouble at all and sold their business within months of offering it for sale, chances are they sold their company at thousands of dollars below what it was truly worth. If the deal was not structured properly, they may unwitting leave themselves legally exposed, an oversight which may come back to haunt them in the future. FSBO’s who are unaware of the true value of their business run the risk of selling their company to a bottom-feeding buyer who will utilize great negotiation tactics to obtain favorable terms and a great purchase price. This wise buyer did not want to give the business owner time to realize he was selling the golden goose! After shrewd negations, a take it or leave it offer was made, the business changed hands, and the new owner laughed all the way to the bank.
Then there are those FSBOs who languish on the market with businesses offered for sale at twice the actual value, wondering why no buyers are showing up to knock on their doorstep. In the meantime, the employees start to leave, one by one, worried about the impending sale, or non-sale, worried about job stability, about new management, etc. The owner is putting so much time and effort into the sale of their business that the business itself begins to suffer, revenue declines, morale suffers, and overall company value drops even further. Not a good plan for selling a business.
Selling a business takes some up-front preparation time. First, it is important to be realistic about the sale price of a business. Investing a little time and energy up-front can keep thousands of dollars in your pocket later on. A well-documented business valuation not only takes into account assets and income, but ideally should carefully consider market forces and expectations. Find a firm that is actively involved in the day-to-day business of business sales, preferably an advisory-type Merger & Acquisition firm, to provide you some guidance on business valuations. While accounting firms may also provide business valuations, they often do not have an in-depth understanding of market forces or industry trends. A detailed business valuation will also point out what drives the value of your business, allowing you to shift resources as needed to grow your business value prior to a sale. Growing your business value and properly positioning your business on the market is crucial for getting top dollar later on.
Armed with a realistic price for your business, you may then decide if you wish to handle the sale on your own or hire someone to help you with the sale. Again, knowledge is power. Find out what it takes to successfully sell a business. Talk to your trusted professionals. Call around. The ideal situation would be to find an advisory firm that will explain the importance of confidentiality, a good a controlled process, properly screening for qualified buyers, the importance of thorough due diligence, not only in uncovering what makes your business tick, but also to protect yourself as the current owner from future liability. Confidentiality is also key. You don’t want your employees or competitors to know that your business is for sale until it has changed hands. Too often, in their eagerness to sell their business, owners do not know how to properly screen potential buyers. Even when they are careful about screening buyers, they may not possess the experience to accurately interpret and analyze a buyer’s true intentions until it is too late. The dangers are obvious: from unintentionally giving away company secrets to competitors to having your private company information floating around town, the importance of confidentiality cannot be overstated.
Take a good long look at your time resources. As a FSBO be prepared to dedicate 10-15 hours per week to the sale of your business, from advertising, seeking out potential buyers, carefully screening them, understanding tax implications, deal structures, due diligence, negotiations, legal ramifications, as well as continuing to run and complete all of the tasks and duties of operating their business. If these tasks, required expertise, and experience appear overwhelming, then perhaps a FSBO is not the way to go. If you prefer to find a professional firm to handle the actual sale for you, again, a Merger & Acquisition type firm that will function in an advisory capacity may be your best bet. They are experienced in providing advisory services and providing extensive extra resources for their clients. How will you know if it truly is an advisory type Mergers & Acquisition firm? Some groups may want to try to get your business at the expense of overpricing it or telling you that they can sell it in 2-6 months. If you find a firm that tells you what you want to hear and not what you need to hear than turn around and walk out the door. If you speak with a firm who clearly and realistically presents extensive information and explains your different choices along with the likely outcomes of each, perhaps even telling you something you did not want to hear; stop, listen and ask more questions. Chances are the second firm that explains the options and the different paths open to you and your company may be the right way to go.