04 Feb How to Sell Your Business Successfully
1. Price It Right
Some Merger & Acquisition Advisors just can’t bring themselves to tell you that your price is too high. Don’t shoot your Merger & Acquisition Advisors for valuing your business so that it is priced realistically and don’t choose a Merger & Acquisition Advisors on the basis of which one values your business at the highest price so they can get a listing. The price of your business needs to be realistic. The best way to accomplish this is to have your business valued by a third party valuator that is knowledgeable in both the science of valuations as well as the art (market forces) that shape the valuation. Businesses that use a third party business valuation have an 80% chance of selling at a much higher price. Those who do not use a professional business broker and a third party evaluation only have a 10% chance of selling.
Your tendency will be to overprice your business. When you do, the time it takes to sell just stretches out to the point where it is mighty shopworn merchandise by the time it finally sells . . . if it sells at all. Nothing raises the doubts of a prospective buyer more than to find out you’ve been trying to sell for a long time. A full-fledged business valuation costs upward of $2,000, so don’t expect a good written appraisal for less. For a larger company, one can easily cost $10,000.
2. Fixtures, Equipment & Facility
Buyers will want a complete list of equipment and will inspect it to ensure that everything is in good working order. Nice looking businesses sell first! Buyers deduct large amounts from their offering price for businesses that is in less that top shape. Keep your premises neat, clean and in good repair.
3. A Good Reason to Sell
Buyers are always concerned about this. They are afraid you may be selling because of some undisclosed fact that may hurt the business in the future. Buyers must see a logical reason for the sale or – without it, they think the worst.
4. Form Your Team
It all starts with teamwork. You need to form your team. You need your Merger & Acquisition Advisor, Attorney and a Accountant. Today, selling a business is so specialized that even the best attorney or accountant is no substitute for a specialized and knowledgeable Merger & Acquisition Advisor who is very experienced in selling a business as well as expertise in finding qualified buyers.
5. Prepare a Package
Comprehensive documentation from a buyer’s perspective is essential today. That means you have to develop a detailed package to present your business. Today’s buyer prospects are different from those of even just a few years ago. The computerization of the workplace has had a major impact. Most buyers today are “numbers crunchers”. Today’s buyers also expect you to be able to justify your price and terms of sale based upon their understanding of normal investment returns and risk factors. You also have to compete for your buyer prospect’s attention against an ever-increasing number of sophisticated groups trying to sell other types of business and investments.
6. Target Prospects
After your marketing package is complete, you’ll know what kind of buyer you need. You’ll know how much cash they must have to make it work. Your Merger & Acquisition Advisors should then set up a process to target and qualify buyer prospects. Don’t rush too quickly, however, to consider everyone a prospect. There are still people out there even people with money who think they can buy your business for no money down. If you don’t have a process to qualify prospects, you may find yourself dealing with these ‘no money down’ tire-kickers, spending lots of your precious time and resources trying to sell them your business. Desire to buy is not proof of a prospect’s ability to buy.
People are naive and think businesses sell as fast as houses in a good market. Depending on the size of the business, its price, industry and the state of the economy it may take 6months to 2 years to sell a business. So it is critical to keep your marketing effort confidential except to strictly qualified prospects. Your Merger & Acquisition Advisor knows how to do this.
7. Negotiate Professionally
When you get an interested and qualified prospect, plan your negotiation strategy carefully. Your Merger & Acquisition Advisors will facilitate the process, so follow their advice. Remember that your goal is to sell, and not to beat the buyer at some negotiation game. You and the buyer should now lay the foundation for a team effort to get to a closing. Don’t allow yourself to get bogged down in disputes with your buyer. Don’t allow your ego to distract you from satisfying your underlying need to sell. Work with your buyer as an ally. Focus on interests, not on positions. Generate a variety of solutions before deciding what to do about any particular problem. Try to resolve the toughest issues with objective criteria, independent standards and market norms.
8. Wrap It Up Quickly
Even the best buyer prospects can change their minds overnight. After the buyer prospect makes a commitment to buy, get an offer to purchase in writing and get a good sized, non-refundable earnest money deposit. After the offer to purchase agreement is signed, close as soon as possible. Your business isn’t sold until it’s sold. Make sure the check clears before you set the plans in motion for that well-deserved vacation.
Brian S. Mazar CBI, MBA
American Fortune Mergers & Acquisitions