10 Jun Can Your Seller Afford to Sell
As a business broker, you probably are very diligent in working with your sellers and their CPAs or financial advisors to ensure they understand what they will likely net from a potential sale transaction. Most likely you have had sellers comment when they see the potential net number that they don’t know if they can live on that amount. A possible reaction is for them to suggest to you, the sales professional, that you need to get them a higher price or cut your fees so they can net a greater amount.
This of course poses problems and potentially puts you at odds with your seller. The business at any point in time is worth only what it can bring on the open market. What is a willing, qualified buyer, who seeks a specific return on investment with his or her interpretation of the risk involved, willing to pay? Generally, you cannot make it worth more than the market will pay.
You perform valuable services, work hard, and earn your fees. The seller’s need for a higher net amount should not be achieved by your sacrifice.
This potential scenario can be the product of short-sighted behavior patterns, unrealistic expectations, lack of proper planning, and sometimes just being uniformed. As a business brokerage professional, you may encounter these situations on a too frequent basis:
- A primary goal has been to pay the least amount of tax each year by limiting the profits realized on the seller’s business, regardless of entity structure.
- As the business has become more profitable over the years, the seller has ratcheted up spending to match.
- The seller has not taken stock of personal expenses the business pays on behalf of the owner and/or family.
- The seller has not considered how to pay for or replace those perks, post-sale.
- The seller has no idea how much money he or she will need post-transaction to maintain the current lifestyle.
- The seller is typically not well diversified financially and has saved very little outside of the business.
- The business usually represents the largest illiquid asset the seller owns.
- The seller expects the business sale proceeds, net of taxes and fees, to provide sufficient resources to maintain or increase his or her lifestyle.
- The seller does not know the range of value for the business in today’s marketplace.
If your sellers were properly prepared and they addressed these issues in advance of you engaging them, might you see an increase in your closed transactions? Could you prevent the awkward discussion of reducing your fee to increase their net proceeds? Might you avoid the worst outcome—they decline a sale after realizing the transaction will not provide them with the asset base needed to fund their future lifestyle?
Fortunately you can achieve greater success in sales transactions without extra work, staff, cost, or effort on your part. Educated sellers are your best sellers. Empower them by recommending they learn the elements of a successful transition plan. In fact, positioning yourself in the marketplace as a true advocate for the seller with this unique offering can provide you an added advantage. This can better prepare them for their transaction and allows you to close more deals.
As trusted business advisors, and authors of the book “Cashing Out of Your Business: Your Last Great Deal“, Jane Johnson and Kathleen Richardson-Mauro will help you achieve your goals and maximize value when transitioning out of your business and into the next stage of your life. We’ve developed an effective, turnkey, 6-step business and transition planning process to ensure a smooth transition.
We’ve developed Business Transition Academy to provide business owners with a wealth of information to get them prepared for a business transition. Review our testimonials, read our business owner resources, and contact us today to learn how we can help you make informed decisions to achieve superior results.
