Since business owners are the type who know about selling -- either products or services-- and about making deals -- it’s not surprising that owners approach selling their businesses with these tried-and-true tactics and ideas. Sellers who have spent years building a business are often unaware of how completely different the process of selling a business is.
Savvy sellers, realizing the importance of a selling approach equal to this very important task, will depend on the guidance of a business intermediary. With professional guidance, sellers can benefit from their personal strengths instead of letting them get in the way of the selling process. The following “strong” selling points are signposts on the road leading to a successful transaction.
Price Your Business To Sell
Sellers are good “business people;” they naturally are after the best possible price for their business. Realistic pricing is perhaps the most important factor in selling from a point of strength. Understanding the current marketplace, and not some high mark just past or in the possible future, is key.
Prepare Your Business for Sale
In addition to the obvious need for the business to appear clean and cared-for, there are important steps the seller must take in advance of putting the business on the market. In most cases, a business will sell based on the numbers. Your business broker, working with your CPA, will help you create a clear financial picture -- in a timely fashion -- and to prepare statements suitable for presentation to a prospective buyer. Remember that buyers may be willing to buy potential, but they don’t want to pay for it.
Business owners are accustomed to coping with paperwork, but few have had exposure to the specialized contracts and forms required both before and during the selling process. The business broker, an expert at transaction details, will help guard against delays, problems, and premature (or inappropriate) disclosure of information.
Maintain Normal Operations
Another vital activity for the seller is to keep on top of the day-to-day running of the business. When a business intermediary is on hand to focus on the marketing of the business, the seller can focus on keeping daily operations on-target.
Confidentiality
An adjunct to maintaining the status quo is the important task of maintaining confidentiality. Until a purchase-and-sale agreement has been signed, most sellers do not want to disturb (or jeopardize) the normal interaction with customers and employees; nor do they want to alert the competition. A business broker helps by using nonspecific descriptions of the business, requiring signed confidentiality agreements, and performing a careful screening of all prospects.
To keep the sale of your business on firm ground, be sure that your “strengths” as an independent business owner aren’t actually weakening the sale. Using these key selling points along with the expertise of a business intermediary will keep the process going strong.
– 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, Valuation, and Exit Planning firm.
At Utah Business Consultants, we’re proud to offer services in both selling a business and buying a business. Each of these areas requires careful attention to detail, the sort our business brokers have been providing to our clients for years.
Are you considering buying a business for the first time in your career? Whether you’re in this situation or just need a refresher, here are some very general steps we recommend following as you begin the process.
Step 1: Research
For starters, often before you’ve even contacted our business brokers, you should begin with some very general research. You’re looking at the broad factors here – the kinds of businesses you might be interested in buying, the funds you have available, the sorts of businesses that are doing well in the modern economy, and so forth. This will help you narrow in on a few of your favorite potential options.
Step 2: Broker Consultation
From here, as you begin to get a bit more serious about the purchase and look at individual options, it’s time to meet with one of our high-quality business brokers. This person will walk you through everything that will be in front of you from this point on, including which documentation you need to have present, important dates in the process, and more.
In addition, however, business brokers can help you obtain information you might not have been able to get on your own. This information might be regarding business types you’ve looked into, exit plans for a given company or other areas. Your broker will help you settle on a single business and focus on obtaining it.
Step 3: Confidentiality Agreement
When you’ve identified the business and have begun negotiations with the current owners or managers, one of the first steps here will be signing a confidentiality agreement. This agreement covers the potential seller in case things don’t work out with the sale – you may learn important, even proprietary information about the business during the negotiation process, but the agreement stops you from disclosing this to others in the industry in this case. Signing this agreement allows the seller to open up to you about these private areas of the business, helping you get an idea of whether you want to buy it.
Step 4: Seller Information Evaluation
Once you have all the required information, you’ll sit back down with your broker and go over all of it. Your broker will break down the most important areas to focus on, plus any questions you should reach out to the seller with.
Step 5: Final Decision
And finally, it’s time to decide if you’re going to make an offer on the business. If you decide yes, your broker will help you ensure the offer is written properly and contains all the right contingencies. If the offer is accepted, you begin due diligence and asset evaluation, another process your broker will assist you with.
For more on the steps to buying a business, or to learn about any of our business brokerage services, speak to the staff at Utah Business Consultants today.
Merriam-Webster Dictionary defines due diligence as “research and analysis of a company or organization done in preparation for a business transaction.” Some even look at it as a pre-marital background check and counseling. But it should be noted that dissolving a merger is difficult if things aren’t as they appear.
Ultimately, due diligence is the process of being sure that things are as they appear before a deal is sealed. For someone considering a merger or the purchase of an existing business, the review of documentation and the answers to your due diligence questions are critical. There’s no doubt it is a complex process that can be time-consuming. But with so much on the line with any merger or acquisition, you don’t want to make a decision without all of the information. You want to be sure everything is reviewed and all questions are answered to your satisfaction.
During the due diligence process, an often lengthy list of documents should be provided. The list of documents should cover a range of areas, including:
Legal structure and incorporation of the company
Internal Revenue Service (IRS) records
Insurance policy information
Organizational structure
Personnel policies
Operations
Equipment and real estate
Contracts, licenses, agreements, and affiliations
Technology and Intellectual Property
Current or potential legal liabilities
Marketing materials
Today more than ever, buyers are putting more emphasis on the due diligence process. And while the financial aspect is a key component, the due diligence process should also consider organizational items. Be sure to seek documentation and ask important questions about the company’s culture, strategy, leadership, and competencies.
To properly address and evaluate all of the areas of the due diligence process, you want to assemble the best possible team of people. Work with that team, including your business intermediary, throughout the process to review and evaluate the documents and information you receive. It’s also important to keep an open mind. Be sure that you get all of the information you need, but don’t assume that you will find something wrong.
Keep in mind that the due diligence process is very difficult on the Sellers and their staff. Often times the Sellers do not want their employees to know that the company is being sold. This puts a great time burden on the Sellers to produce all of the materials for due diligence, while still running the company. Even if key employees are involved in the due diligence process, it puts extra pressure on them to do their regular job as well as producing all of the due diligence materials.
Although the due diligence process may take considerable time, it’s a critical part of any transaction and should be considered the foundation of the entire deal.
– 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, Valuation, and Exit Planning firm.