If you own a company and are thinking about retiring, then you may be thinking about the best way to exit your business. In some cases, you may be deciding whether to pass your business down to one or more of your family members.
You may be considering whether they have the capabilities and interest to take over the company. Certainly, there would be a greater comfort level if they are already working in the business. You will have a better idea of their skills and interest.
If they are interested and have the skills then you probably don’t need a business broker. You can just hire an attorney who can draw up the necessary paperwork for the transfer of the business.
If however, you don’t have family members with the interest or abilities to run the business then there is a lot to learn about selling your company. We will outline some of the considerations when selling a company.
When do you want to retire from your Company?
One of the first things to consider is when do you want to be fully retired and how do you want your transition period to look. For instance, in many cases, the buyer will want you to stay on for a transition period. This transition period can vary quite a bit depending on what the seller and buyer are looking for. We’ve seen transitions that are as short as a day and as long as 8 years or more and everything in between.
What is most common in transition is that the seller includes a month of a full-time transition in the sale price of the business and then more is negotiable and sometimes included in the sale price. Often there is a consulting agreement which allows the seller to work part-time after the initial month and get paid based on how many days or hours they work.
As you can see there is no one size fits all for transition periods. Transitions can be a good way for an owner of a business to ease into retirement. Many business owners like the idea of a transition so they don’t have to start building a brand new life right away. Some owners like to work, they just don’t want to work full time and want the freedom to travel more and let someone else handle the things that they don’t want to do. If this sounds good to you then it is important to get a buyer that you enjoy working with and feel good about.
Getting Along well with a Potential Buyer
This is a where a business broker can be helpful in screening buyers not only financially, but also to make sure they are the type of people that sellers like to work with. We look for buyers with good personal skills and flexibility in offering a seller the option to work at things that they enjoy and are best at.
In addition, a Business Broker will usually introduce multiple buyers so that a seller has different options to choose from. There is no accounting for personal chemistry and that you can only see from spending time with each other. It’s a two-way street so buyers also want someone they are comfortable working with.
A good Business Broker can set the stage for buyer and seller to get along with introductions and giving both parties background on the other person before a meeting takes place. This helps to start the relationship off with confidence and makes it easier to focus on building a relationship.
You may decide that you were ready to retire yesterday and want to provide as little of a transition period as possible. In this situation, a Business Broker can look for potential buyers with experience in the business. In this case, you may not need to give much of a transition unless the business is very dependent on you. If you have staff that have relationships with customers and are knowledgeable in what you do then it makes it easier for a buyer to run the business without you and makes your business more attractive.
In terms of timing on when to start the sales process, it usually takes about 6-10 months on average to sell a company so if you consider that along with a transition period you may want to start the process of selling your business 1-2 years or more from when you want to exit the business.
How Much is your Company Worth?
After you have an idea of when to start the process of selling your company, the next question would be how much can you get for your company? This is important for a couple of reasons. One is that you want to be confident that the proceeds from the sale of the company plus your other assets and income will be enough to support you in retirement.
The other reason this is important is that you want to have realistic expectations of a potential asking price and offers for your company. You usually want to have an asking price that leaves some room for negotiation but isn’t so high that you don’t get any offers for the business.
To provide a potential asking price, Business Brokers will typically review your last 3 or more years of tax returns and profit and loss statements plus a year to date financial statement and interview you to find out about the strengths and weaknesses of your business. They will ask questions about your customers, products and services, employees, competitors, growth opportunities, and challenges. Then they will compare this information with their knowledge of the market and what other similar companies sell for and provide you with a recommendation of a potential asking price.
It’s best to have a business broker that doesn’t charge an upfront fee. That way you can be confident that their goals will be aligned with your goal of selling the business in a timely fashion at the best price.
When you are selling a business it is important that the word doesn’t get out to your customers, suppliers, employees and competitors that you are selling your business. If you are representing yourself it is very difficult to prevent this from happening. Business Brokers are trained in protecting their client’s confidentiality.
They will write a summary about your business that provides some information but not the exact name or location of the Company. Before providing these details they will have potential buyers sign a confidentiality agreement and get information such as whether they are qualified to purchase the business. This limits the number of people that find out that the business is for sale and prohibits them from spreading the word.
If you have a Company that is making an annual net income of $200,000 to $5 Million+, the good news is that there are plenty of potential buyers for your Company. These buyers will include private equity groups, companies within your industry and outside of your industry, and wealthy entrepreneurs. It’s not about finding someone that is interested, it is about finding the right buyers for a particular business.
A top business broker will have a comprehensive marketing program to generate the right buyers and will weed out the tire kickers so that you focus on running your business and maintaining the profitability during the sales process. The last thing a potential buyer wants to see is a business that has gone downhill because the owner has spent too much time speaking with buyers, trying to sell their business.
Experienced Business Brokers will make wise use of their client’s time by only introducing qualified buyers to the seller. Having spoken with thousands of potential buyers, an experienced business broker will have the instincts and knowledge to determine which buyers are most likely to buy a particular business. They are also good at working with a number of buyers at once to potentially create a bidding environment for their client’s business which provides leverage in negotiations. They will help to negotiate not just the price but the terms and conditions of the accepted offer.
Top business brokers have relationships with banks which they can bring in to provide financing. The banking relationships enable the Broker to have a keen understanding of whether a particular buyer is able to get financing for a given deal.
When you are selecting which offers to go with, the best business brokers will help their client to understand not just the highest offer but who is most likely to be able to close on an offer and which deal structure would be best. Business Brokers make recommendations but at the end of the day, it is an owner who makes the final decision. Once you decide which offer to accept there is still a lot of work to be done before you are sitting around a closing table.
Experienced Brokers can guide you through due diligence and there are often things that come up which can cause a deal to go down the wrong path. Buyers and Sellers will get differing opinions from their attorneys, accountants, family members, etc. Brokers can help to keep things on track and guide both buyers and sellers to let them know what is normal and what is deviating from the norm.
Often there is a period of exclusivity that is granted to potential buyers to perform due diligence. If a buyer is dragging their feet, a Broker can use the leverage of other potential buyers that are waiting in the wings, to keep things moving forward or switch to another potential buyer that is not prepared to move forward in a timely fashion.
An area that may need to be negotiated during due diligence is when a buyer would be allowed to speak with customers or employees. Normally this is done after a sale takes place but in some cases, this may be allowed without alerting the employees or customers of a potential sale. It can be done more as a reference for a potential investor.
Potential Buyers will dig deeper into the financial information to confirm what they have been given. They will also look for potential risk areas such as whether a large customer makes up a significant portion of the revenue and what would happen if that customer would be lost. They’ll look at contracts to determine whether some are expiring soon. They will also look at trends to see if a business is trending up or down. They will review if there are any lawsuits or liens against the business.
The process of negotiating a Purchase Agreement can either start right after an accepted offer, but more often it starts when the due diligence is complete or at least off to a good start. Before engaging in the costs of an attorney, usually, buyer and seller want to feel comfortable that the deal is moving forward. If buyer or seller need an attorney with experience in closing business sale transactions, an experienced business broker can recommend attorneys with experience that they have done business with.
Normally the seller’s attorney will be the first attorney to draw up a contract based on the terms of the Letter of Intent. In some cases, the buyer’s attorney will draw it up. They will typically go back and forth a number of times to negotiate the details of the deal. A business broker can keep things on track if the attorneys are at a roadblock. The best way to keep things moving forward is to establish good relationships with all parties to effectively resolve any differences that may come up.
After the purchase agreement is agreed to than the next step would be to schedule a closing date. Prior to the closing, the attorneys will make sure that any adjustments are made for bills that haven’t been paid yet but are accrued or vice versa. Once this has been done and the closing is scheduled you can relax. At this point, the deal is typically good to go. The closing is just signing documents, exchanging funds, and any information about plans for the transition.
Award Winning Business Broker
If you are considering selling your company, Synergy Business Brokers is an Award Winning Broker with over 15 years of experience. We have a database of over 24,000 potential buyers. Our focus is on selling companies with annual revenue of $600,000 to $40 Million+ in industries such as technology, the healthcare industry, wholesale/distribution, manufacturing, services, construction businesses, consulting, education, and more. We have Brokers located in New York, Connecticut, Massachusetts, and New Jersey and sell businesses throughout the US. For a confidential consultation please contact our managing director, Blake Taylor at (914) 738-9350 or email@example.com. Or you can fill out seller registration form at Seller Registration.