A Beginner's Guide to Selling a Business

The idea of selling a business seems so simple at first, but in reality it's a very complex matter. If you're fortunate enough to be in a position of looking to sell to move on to bigger and better things, you don't want your business to sell for a dime and leave valuable profit on the table. On the other hand, you don't want to price it so high that no one takes you seriously. If you're in the unfortunate situation that you need to sell because you can't keep the business going any longer, you still want the price to be as attractive as possible for an expedient purchase. That means avoiding pricing in such a way that you lose valuable time and money to operation costs needlessly because the sales figures is perceived as inflated.

The first place to start the valuation process is of course with your business itself. Start by pulling together and organizing your company's past three years' worth of tax returns, financial statements, and sales records. This paperwork and related documentation will help a qualified business appraiser make an independent valuation of the company's market value. The process gives you an informed position. You know the ins and outs of your business financially and from every angle. And a summary of this information can be prepared by your business appraiser as a hand-out to use during discussions with a potential buyer.

Step two will be to retain a professional third party-usually a business broker, investment banker, attorney, or accountant-to essentially present your business to prospective buyers. But acting as a sales agent is not the only talent involved. The third party also needs to be able to guide your business through due diligence and be able to give you an objective look at offers received. Finally, the broker or third party helps weed out the nonsense offers that are just a waste of your time not serious. These frequently come in the form of "innocent" probers to find out what you are up to, frequently from competition. More importantly, the third party also helps hide your sale from competition until you are ready to sell. In highly competitive markets this is a critical need, especially when jittery clientele are involved. The cost for all this help comes in the form of two fees. The first is cover the advertising and marketing costs for sale. The second fee comes when the business actually sells in the form of a commission usually ranging from 6% to 10% of the business sale price.

How do you choose the right broker? There are a number of ways and referral sites, both on paper and on the Internet. What you're interested in is a party who will genuinely represent your interests actively. Many brokers will say they are interested in helping; it's natural to follow up on a lead even if it generates only a partial fee. But a half-committed broker doesn't do your business any good. You want the type of broker who understands your industry well, has experience "talking the talk" for your market and has a good history of successful sales. You will want to see references and talk with parties of past sales. What worked and what didn't? How was the broker's support to generate the sale, etc.?

Third, be prepared for a long process. Most business sales will not occur within a week. A good transaction will involve quite a bit of review, negotiation, and comparison. There are many risks at multiple stages, so local parties are at an advantage to close the deal than those at a distance or even out of country. Additionally, given all the obstacles of governmental rules, a domestic business sale is likely to generate a higher sales price than one with an out of country party having offset for new costs.

Neil_Lemons

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