When business owners try to sell their business sometimes, they try to do it without the help of a Business Broker or M&A Firm. If you are selling your business to your children or a close family member, then you don’t need a business broker. It’s best just to use an experienced attorney.
If you aren’t selling your company to a family member, this article will discuss some of the problems that can occur when you are selling your business yourself. Sometimes business owners get approached by a potential buyer, and other times, business owners will try to actively market the business themselves by contacting buyers. Selling your business yourself can work out if everything goes smoothly, however, in most cases, this doesn’t happen, and problems occur. The first problem area we’ll discuss is confidentiality.
1. Employees or Customers can find out that your business is for sale
When someone approaches you to say they want to buy your business, it’s natural to be flattered. It’s always nice to know that someone wants the company that you have worked long and hard to build. However, if you start discussing this with the potential buyer, your employees might overhear this, and in some cases, they may get nervous and get another job and leave your company. If its an employee you didn’t want then that’s fine, but if its an essential member of your company that’s not something you want to happen.
In other cases, the potential buyer may ask competitors about your business and let it slip that they are talking to you about taking over. Before you know it, your competitors can use this against you. The potential buyer may also speak to your customers to see what they think about your services or products. If your customer is suspicious of the questions that the buyer is asking and doesn’t like the potential buyer of your business, they may be concerned about this and start looking to go with your competition.
Business Brokers and M&A firms make sure that every potential buyer signs a confidentiality agreement and provides information on their qualifications before they even find out what business is for sale. Then when a buyer wants to speak with a potential seller, they will arrange for an off-site meeting or an after-hours meeting when employees are not around. They also won’t be able to approach customers, employees, or competitors. Confidentiality is essential, and experienced M&A Brokers understand how to protect you during the sale of your business.
2. You are selling your company for the wrong price
When someone approaches you to buy your business, how do you know if the price they offer is a good one? The answer is if you are only dealing with one person, you really don’t know what the business is worth. Sure, you can get a valuation of your business done, and that is a helpful thing. But, every business is different, and ultimately, the market will determine what a business is worth. The best way to truly figure this out is to have a Business Broker or M&A firm speak with many potential buyers and get multiple offers. This provides leverage to negotiate the best price and terms.
If you don’t have a buyer that approaches you and you are approaching potential buyers, not only is confidentiality a problem as was discussed earlier, but having the right price is also critical. If you are asking too little than you are leaving money on the table and if you are asking too much, you will turn buyers off, and they won’t be interested. It’s essential to have the right asking price so you can leave some room for negotiation but at the same time attract potential buyers so that you get multiple offers.
3. Your buyer is unable to get financing to buy your business
We have heard from many business owners that tried to sell their business themselves and spent a year or more working with a buyer, and the buyer was unable to get financing for the purchase of the sale. In some cases, the buyer was an employee, and in other cases, it was someone they knew or someone that approached them from the industry. Because they already had a relationship with the buyer and were comfortable with them, they didn’t take the necessary steps to qualify the buyer and find out whether they had sufficient funds to be eligible for a business acquisition loan.
A good business broker will find out how much money the buyer has before they are even introduced to the seller, so they don’t waste time talking to unqualified buyers. Also, an experienced business broker will have relationships with banks that can review the business financial information and determine how much a particular buyer will need to qualify for a business loan. The bank will run a credit report on the buyer and provide feedback to the M&A Broker as to whether a particular buyer is qualified. This includes inside information on the buyers’ likelihood of getting the loan.
4. Business Sellers often speak with one buyer at a time
Business owners are busy running their business, so they don’t have time to talk with a lot of potential buyers. They tend to focus on one buyer at a time, which slows down the sales process and limits your negotiating power.
Top Business Broker will have many potential buyers that they are speaking with simultaneously. This provides many advantages. One is that its human nature to want things that other people want so that when buyers know that they aren’t the only ones interested in purchasing a business they will tend to move faster and give a better offer so that someone else doesn’t buy the company before they do.
The good news for business owners is that you only need to speak with a few different buyers. The M&A Broker will usually talk with dozens of buyers and narrow down the list to the ones that are most qualified and most interested before the buyers are introduced to the seller. Their network and advertising allow them to quickly and efficiently reach a lot of buyers for your business. If one buyer doesn’t move forward soon, then they have others to turn to.
5. Business Owners aren’t experienced in advertising a business for sale
When selling a business, many details go into marketing a business for sale. The first thing is where to advertise a business for sale. Business owners often advertise in only one or two places. Successful Business Brokers advertise on dozens of different platforms. Business Brokers also know how to advertise on these platforms. You need to write up a summary on the business that presents the business in such a way to draw the attention of potential buyers but not give too much information away so that people can figure out what company is for sale. M&A Brokers know what types of headlines and descriptions attract the right buyers. You also need to present the financial information in ways that buyers are used to. This will be covered in the next topic.
6. Owner’s net cash flow Information needs to be presented to potential buyers
Most tax returns are designed to minimize taxes, not maximize the bottom line. Potential Buyers want to see what the business is truly making. Experienced Business Brokers can work with the business owner to recast the financial information to show what the total compensation of the owner is, including their salary, perks, and benefits as well as any one-time expenses that a new owner would not have. This cash flow statement is what buyers will be looking for to properly evaluate the true worth of a company and make a solid offer on the business. Business Brokers also make sure that confidentiality agreements are in place to protect your financial information.
7. Don’t let emotions kill the sale of your business
Emotions are important in any relationship. We all have them, but a good Business Broker has seen most issues that come up and is much less likely to react emotionally to negotiations that are part of a business acquisition. A business is an owner’s baby and its tough for them to hear a buyer that needs reassurance or a discussion of any perceived weaknesses of your business. Business Brokers act as intermediaries and can keep things moving forward by calming down both buyer and seller when things might get heated to due to difficult questions or disagreements which come up in valuation, terms, conditions, or due diligence. They have experience in providing solutions to typical problems that occur in selling a business.
8. It’s important to know what is typical during the purchase of a company
There are many different variables in the sale of a company. It’s important to know what is customary in the business sale process so that you can work out how to move forward with a buyer and seller. Common issues that come up are:
- What are the average price and terms for the sale of businesses that are similar to yours?
- How long of a due diligence period should be provided to a buyer once you have an accepted offer?
- How much information should be provided at what stage of the business sales process?
- Should the sale be structured as an asset sale or stock sale?
- How long of a transition period should the seller provide?
- Is it customary to speak with customers and employees?
- What happens when the lawyers disagree on the typical terms?
- What is the best way to merge two different companies?
An experienced business broker that has closed a lot of deals can provide advice on answering these questions and negotiating solutions.
9. It’s essential to have experience in qualifying potential buyers
Any good marketing program is designed to generate a lot of interest. However, most of the people that respond to an ad will not buy a particular business. It takes years of experience to know which buyers are most likely to buy. Business Brokers have systems in place to qualify buyers, get confidentiality agreements in place, and ask the right questions of potential buyers. Without this experience, business owners can waste time and get discouraged with the sales process.
Most potential buyers will say they are serious and motivated, but it takes experience to know which ones are legitimate. Business Brokers are only introducing the best buyers, so this relieves the burden for owners to speak with a bunch of tire kickers that will waste time. The best buyers are not only those that are financially qualified but also have the skill set to allow your business to thrive after you leave it. They also have the time and interest in moving things forward quickly. A good Business Broker will spend most of their time working with these buyers.
10. Experience closing the sale of businesses
Many things can come up during the sale process that can cause the buyer or seller to get cold feet and back away from a deal. While no business broker closes every business, a good M&A Broker can give you a much better chance of closing a deal. They combine their knowledge, experience, and personal skills to get the deal done in a timely fashion, solving issues that come up during due diligence and negotiation of a purchase agreement between buyers, sellers, and attornies.
Synergy Business Brokers M&A
We aren’t the right business broker to sell every business. We only focus on selling companies that have annual net cash flows of $200,000 to $5 Million in the following industries:
If you have a company that fits in with our specialties we think you will find that we are your best option. We have an extensive database of potential buyers that we have curated over 16 years of selling companies in the areas that we focus on. We spend much more money on advertising than the typical broker with ads on Google, Facebook, Yahoo, Bing, Linkedin, Bizbuysell, Businessesforsale.com, BusinessBroker.net, Dealstream, and more.
Synergy Business Brokers would like to offer you a confidential consultation. We’ll discuss the details of your business, why you want to sell, and give you a possible asking price of your business. There is no fee for our services unless we sell your business so we are selective in taking on assignments where we can be successful. We have potential buyers in all 50 states as well as in Europe, Asia, and Australia.
To hear from some of our Brokers and customers, you can view our Videos and read our reviews. You can contact us at (888) 750-5950 or [email protected]. To provide us with more information, please fill out our brief online form. We look forward to speaking with you.