Tuesday, 2 August 2011

Consider two paths to follow when selling a business

When business owners decide to sell their business, they have two distinctly different paths to follow:

·         Go it alone
·         Bring in a team of professionals who will assist them in making one of the most important decisions of their lives.

If sellers decide to do it themselves, they must make sure they are prepared to deal with picking up the phone and telling a short list of prospective buyers that they are thinking about selling.  More importantly, sellers must be prepared to deal with the risk associated with such a decision.

Imagine the impact the news of a pending sale would have on sellers’ businesses when their competition, customers, employees and suppliers find out.

One of the big differences with following the other path is that dealing with a professional business broker opens up the seller’s business to many potential buyers.  Just like most people don’t want to limit the sale of their house or car to one buyer, sellers shouldn’t restrict their pool of buyers.

The by-product of this is that the minutiae associated with the finding a buyer does not interrupt the sellers’ attention, enabling them to focus on increasing their cash flow to make their business even more attractive.

When business owners decide to follow this path, they need to ask themselves, “What should I look for in a business broker?”

Like any partner that sellers bring into their business, the invitee needs to possess a few fundamental characteristics.  One of the basic traits is credibility, which comes in many forms.  For example, if the broker says he can get the seller’s asking price or more, be wary.  Since owners sometimes overvalue their business, sellers must be cautious if the broker says he can meet or beat their expectations.  Related to that are the brokers who want an upfront fee.  They get owners excited by telling them what they want to hear and then have them write a check before any marketing has begun, let alone a prospect located.

The landscape is littered with owners who have surrendered significant fees only to be disappointed when the broker hasn’t delivered on his or her promises.  For example, recently I spoke with a leading industrial wholesaler who paid a “broker” $30,000 to have the business “appraised”.  Years later the business is still unsold. 

Sellers must make sure their broker represents a wide selection of businesses and, more importantly, make sure they are quality and profitable businesses.  Nothing diminishes a broker’s credibility with a legitimate buyer faster than when they present a list of unprofitable businesses for sale. 

Another trait a professional broker must have is confidentiality.  Sellers need to understand how and when their broker will share their business with prospective buyers.  As simple as it sounds, sellers also must make sure the name of their business does not appear in any collateral materials:
·         Think of the negative impact a local retailer experienced when customers flipping through the local Multiple Listing Service book saw a picture of the business being for sale.
·         Envision the damage caused to a Southern Ontario manufacturer when competitors found out this business was for sale when it was identified by name on a web site.
In both of those actual cases, the sellers were put in a position where they had no option but to sell, which is not a particularly strong negotiating position to be in. 

Finally, a broker must possess experience.  They must be licensed, but also should be focused strictly on selling businesses, not residential real estate.  They must possess expertise and the means of locating buyers, locally and nationally.  Successfully structuring a transaction that is mutually beneficial takes familiarity.  If a broker is unable to explain to the seller what makes a successful transaction, they’re not likely going to be able to explain it to a buyer.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 
William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.


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