Some business owners feel that they can sell their business themselves. After all, who knows the business better than they do. Often, these owners become sellers by simply placing an ad on the internet and waiting for the telephone to ring. They think of the money they can save by not paying a broker’s fee. Sounds good, but it very seldom works! First, the telephone may not ring. If it does, it may be the local competition attempting to find out what is for sale and for how much. Those who may be interested will visit the business, ask a thousand questions, leave, and never come back. So much for confidentiality, proper pricing, qualifying the prospects and finding the right buyer.
Business brokers are not magicians. They can’t sell an overpriced business or create a demand that isn’t there. What they can do, however, is market the business so it is shown only to qualified and interested buyer prospects. In addition to individual buyers, Business brokers work with large buyers as well as Private Equity Groups and Strategic Corporations that most sellers are not aware of.
Another advantage is that a business broker acts as an intermediary between the buyer and the seller. Sellers should look for a broker who has obtained the Certified Business Intermediary designation from the International Business Brokers Association or the Merger & Acquisition Master Intermediary from M&A Source. Without an intermediary, the seller often gets frustrated with the buyer pointing out items they see as wrong with the business or taking up too much of the seller’s time investigating the business. A good business broker shields the seller from most of these frustrations.
Very few sellers price their business properly. A business broker has a handle on the local marketplace, access to market data, and pricing information not available to a seller. Business brokers are also good sources of outside financing, if available. In some cases, the full sale price is not the issue, but rather how the sale is structured is the key to a successful sale.
Business brokers generally have a backlog of buyers that they work with on a current basis. They prepare a business profile on the businesses they represent, designed to show the business in its best light. They know how and when to advertise when to use trade publications, how to use the Internet, and how to qualify buyers. A Business broker can maximize the price of a business and create added value so that their fee is generally a non-issue. Sellers usually receive a higher price when working with a business broker, even after the fee, than they would if selling the business on their own. Remember, it almost always pays to use a professional!
- Wayne A. Simpson CPA, M&AMI is a Managing Partner at Utah Business Consultants and a Merger & Acquisition Master Intermediary with the M&A Source. Utah Business Consultants is a full-service Business Brokerage and Valuation firm.
In part one of this two-part blog series, we went over the two primary culprits in business sales that fall apart: The sellers and buyers involved. It stands to reason that the two entities most directly involved in this process would be the ones with the most power to torpedo it if they made certain mistakes.
At Utah Business Consultants, though, we’re here to tell you that getting a deal done may contain small roadblocks that aren’t caused by either the buyer or seller. These aren’t as common or likely, and can mostly be avoided through employing pros like ours who know how to approach each important area, but they’re worth knowing about in case you experience any of them while trying to sell your business. Let’s take a look at some non-buyer-or-seller reasons why business sales may derail.
“Acts of Fate”
In some cases, things just happen that affect the quality of a deal and may even lead to it falling through. Luckily though, these are usually preventable if you take the right advanced steps. A few instances here include:
- Buyer or third-party investigations of the finances and other areas of the business to be sold reveal certain issues, such as environmental problems or financial issues. This one rides a fine line between being an act of fate and something the seller can control – but mistakes are made, to be sure, and it’s possible this was an honest one.
- In other situations, issues may arise with local, state or federal government agencies related to the sale. In most of these cases, neither the buyer or seller will have any role in this.
- The seller also might not be able to fully prove or substantiate their earnings, or the buyer might simply have a different opinion of what these numbers mean.
Third Party Problems
The buyer and seller aren’t always the only entities who have some impact over the sale of a business. There might be various advisors or third parties involved, including attorneys in many cases. A couple possible issues that can arise here:
- Buyers or sellers might receive highly aggressive advice from their attorneys or other advisors, complicating the sale process. These entities can sometimes lead to contentious negotiations that derail the entire sale. If you’re bringing in outside representation (besides our advisors), be sure to vet them in advance and make sure you’re all on the same page.
- If property is being transferred as part of the sale, landlords independent of the buyer or seller may drag their heels somewhat about transferring the lease. They may also have issues with creating a new lease if this is necessary.
For more on avoiding your business sale falling through, or to learn about any of our exit planning or business brokerage services, speak to the pros at Utah Business Consultants today.
The current economic babble may hinder some business sales, but even with a challenging environment, businesses are changing hands. Regardless of the economy, many aging boomers are looking to retire, while younger boomers, Generation Xers, and Millennials are interested in buying and becoming their own bosses.
This is the time when business savvy people don’t run for cover but actually dig in. While some business owners are hiding from the possible negative and money draining effects of the current market, there are those who continue to look to buy and are finding that deals can still be done.
Many business owners are concerned with the future and already have plans to sell in the next few years. They may be even more motivated to start the sales process now since fewer businesses are in the market now, but are selling as fast as in recent years. Buyers are discovering that business opportunities do exist and that regardless of the state of the economy, deals are being done, they may simply require some creativity.
Keeping perspective during turbulent economic times is essential. If your business has been impacted by the economy (and many businesses have), you have several options: first, you can hold hoping for better economics in the future, second, sell now given where the business is, or I suppose a third option is to simply give up and get a job. For those in the second category who are thinking of selling, remember, a business is worth what it is generating today. It’s not plausible to convince buyers that the business is worth what it will be generating two years from today, nor what it was generating two years ago. There may be some value attached to future performance that has already been generated if so a structuring mechanism like earn-outs can be negotiated to capture or participate in that future value.
If your business is currently healthy and is either stable or growing, it’s a great time to be in the market. We are experiencing a surge of interest from buyers – why? With the stock market either declining or static, investors including buyers, are looking for investment opportunities that will yield positive returns. The next one to two years may prove dicey in the stock market, but astute buyers know that business ownership is a great way to make their money really work.
Regardless of the reason, whether it’s retirement, ill-health, partnership dispute, divorce or plain and simple burn-out, businesses are changing hands for good reasons. Buyers are looking. The market may take many months to rebuild and become stable again. In the meantime, if you’re thinking about selling, it’s business as usual.