Selling Your Business: Where to Start

 

When It Is Time

You know when you look like our friend here, it is time to exercise your business exit plan. If that plan includes selling your business, you need to be aware of a few things before you start. 




Where to Start?

Selling a business is a large undertaking. It is best to start with hiring a GREAT Business Sales Professional! I want to be clear about this, Real Estate Agents are NOT Business Sales Professionals. They are trained to assign value to the Real Property only and post that as the total asking price. By no means am I hating on Real Estate Agents. They have their place in our communities and are fantastic with selling real property. They are just NOT the professional needed for selling a business.

To select a GREAT Business Sales Professional, you should be aware of the 3 types.

  1. The Driven Professional: This Professional is "Driven" to sell your business as quickly as possible. He/She works 12-16 hours a day on your listing, talking to buyers, and promoting your business. Their only goal is to get you to the closing table and get you paid.
    Drawbacks: There are drawbacks to this professional. Whereas they sound hard working and are going to get your business sold quickly they are generally unconcerned with finding the right person to continue the business. Typically, he/she bring one of two types of buyers. The Unqualified Buyer, who has the money but not the experience and will need hand holding from the seller to make the business work for at least 2 years. The other buyer type is The Consummate Buyer. This buyer type is generally a Managing Agency. They purchase businesses with the intention of being an absentee owner and appointing a General Manager, who will run the business according to their corporate model and not the needs of the area.
    Cost/Commission: The Driven Professional is also historically the most expensive Professional. With commission rates of between 20 and 40% of the total sale. They also tend to charge an inflated listing cost, and renewal cost.  I wonder what they are "Driven" by?
  2. The Best Friend Professional: This Professional is a Business Owner's Best Friend, at least while listing the business. He/She will talk at length with the Seller to gather as much information about their "Ideal" Buyer. They will also attempt to get a price the Seller is happy with, even if it is unrealistic with the actual value of the business. This Professional will work as long as they have to finding the "Perfect Buyer".
    Drawbacks: When utilizing this Professional Sellers can expect long listing times. Typically, between 12-18 months. The Best Friend Professional is too busy attempting to find "Perfect Buyers" that they tend to overlook Well Qualified Buyers who have some experience and cash ready to purchase. The Best Friend Professional also tends to care about the business as much as the Seller if not more. Their driving force is keeping the business running as is.
    Cost/Commission: The Best Friend Professional sets their commissions low on the sale. Generally, between 4-10% of the total sale. They also tend to eat the listing cost, and renewal cost for a listing.
  3. The Relaxed Professional: This Professional is generally relaxed, prepared and ready to work from the first meeting on. They make no promises about how long it will take to sell the business, how many buyers will be brought to the table, or guarantee a total sale price. They work with the business owner to assess the business, get a realistic asking price, and list exactly what kind of buyer they are looking for. Their listings are clean, confidential, and professional looking. They have a dedicated schedule for working the listing. They will bring Well Qualified Buyers only to the Seller, after they have been vetted by the Professional. This Professional's process comes across as inflexible and absolute.
    Drawbacks: Working with this kind of Professional can be frustrating for the Seller at times. It can seem as if they don't care about selling the business, when in reality they care about selling right. Sellers find this Professional to be inflexible in their process. They seem to not have a sense of urgency when working the listing. 
    Cost/Commissions: The Relaxed Professional historically charges a commission that is midrange. Between 10-20% of the total sale price. This Commission reflects their experience and track record with Business Sales. This Professional also charges between $250-$400 per 6-month listing period. They are passing the listing fees to the Seller at the cost they are charged and making no profit on the listing portion of the sale.
Now that you have chosen your Business Sales Professional, the next step is the Valuation process.


The Valuation

This part of the process is the most important. This is where the asking price is set. Without a proper valuation you may be short selling your business and not know it. To figure the Business Value your Professional will need the following documents:

  • Last 2 Years of P&Ls
  • Last Filed Business Taxes
  • Current Year P&L with full expense report
The process of finding the current value of a business takes about 24 hours. The Professional is looking at historical expenses, profits (both gross and net), possible Add Backs (expenses that will change with ownership), industry performance in the local area, industry risk, and current buyer interest in similar business. All of this information is applied to the asking price. This Valuation process takes a trained Professional to complete. It is not advisable to have a Real Estate Agent or Business Owner complete this Valuation.


The Listing

The next step in best practices is the listing itself. This process is going to sound counter intuitive, however, it is what is best of the business. Selling the business should be confidential. There should NEVER be a "For Sale" sign in the window EVER. I know, I can hear you right now, "Then how does anyone know I am selling?" The answer is, they don't. Your Professional's job is to list the business without ANY identifying information, and to find buyers who become interested without seeing the business or knowing location. This is for the protection of the business. Listing confidentially is the only way to protect profits.

Consumers do not understand the decision to sell a business. They assume there are problems within the business, or with the owner. They tend to stop purchasing from the business. This hurts the profit and ultimately the selling price. 

The listing is posted on Business Sales Sites with a Generic Name, State and County Location only, Asking Price, Description of the business and Professional's Contact information. The Professional should show a copy of the listing to the Seller for approval before listing. 

Once the listing is complete and approved it is posted and the Buyer Vetting Process begins. 


Summing it All Up

Selling your business is a long process. There are many things to consider. What Professional to work with, what is the value of the business, how to write a listing properly, and that is just the beginning of the process. 

The rest of the process is finding buyers, vetting those buyers, confidential business visits, Due Diligence Process, Writing the Sales Agreement, talking with attorney's and closing. I will be posting more information about each part of the process as 2023 continues.

If you are looking for more information about selling your business before the next blog post, you are welcome to contact me to chat.

Kadee Sprinkle

KSprinkle@wcobusinesssolutions.com

234-249-1993 (Direct Line)

Schedule a Success Chat


Location: Wooster, OH 44691, USA

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