How to Sell a Company: Working with a Business Broker
If you’ve spent years building a successful business, ultimately there are only two exit strategies: hand it on to your children or a friend, or sell it. We’re assuming you have no desire to simply shut your business down. If your plan is to sell, you’ll want the best possible price and the smoothest possible transaction. Both of those goals are best accomplished through the use of a broker. Let’s take a look at how to sell a company by working with a business broker.
Establishing a Reasonable Business Valuation
A truism of buying and selling companies is that anything is worth only what someone will pay for it. As a seller—and especially of something that you have built with your own time, money, sweat, and quite possibly tears—you will naturally tend to place a higher value on your business than a buyer. However, if you unreasonably overprice your business, you’ll render it worthless, because you won’t be able to find a buyer. While buyers certainly expect some negotiation, listing a business for sale at an exorbitant price could cause potential buyers to bypass your offering under the assumption that negotiating with you will be a long, painful, and quite possibly fruitless endeavor.
That said, you certainly want to get the most possible for your company. A business broker can analyze your financial statements to determine what the business is reasonably worth to a buyer. The broker knows where to find items like your wife’s salary and the insurance on your vehicle and remove them from expenses. The broker also knows how to generate financial projections that are defensible but as favorable as possible given that companies are typically valued based on an appropriate combination of physical and intangible assets, EBITDA, revenue, and/or cash flow.
Finding the Right Buyers for Your Company
Finding people who are interested in buying your business and qualified to do so isn’t like hiring a new employee—a classified ad, Craig’s List ad or Facebook posting isn’t going to cut it. The pool of prospects is relatively small and spread across the country. A business broker who specializes in buying and selling companies deals with this pool of people day after day and may well already know someone who is looking for a business in your industry, geographic area, or size.
In addition to immediate access to prospects, a business broker serves another vital purpose: screening and qualifying potential buyers. Lots of people like the idea of owning their own company, but that doesn’t mean they necessarily have the financial wherewithal or other resources required. Moreover, if you are a franchisee, your franchisor must approve your buyer. In addition to adequate liquidity, they will be looking for appropriate business experience. If you try to sell a company yourself, you’ll have to deal with plenty of “tire kickers” who in reality haven’t the faintest chance of buying your business. The savings in time and wear and tear on your sanity alone make a business broker invaluable.
Easing Due Diligence
Once a potential buyer for your company is identified and a tentative deal reached, the due diligence phase begins. Due diligence is critical when selling a company, because if the buyer doesn’t like what he or she sees, the deal will be off, or at best you will take a hit to your selling price. In addition, due diligence typically requires a substantial volume of records that must be presented in an organized fashion.
A business broker will gather all the documents required for a standard due diligence process from you one time and thereafter deal with providing them to the potential buyer—a process that may occur more than once depending on a variety of factors. The broker will also ensure that your records are complete, accurate, and presentable before they go to a buyer, something that can become a sizeable headache if done yourself.
Hire an Expert Broker to Help Sell Your Company
Working with a business broker to sell your company has a long list of advantages: easier access to prospects, prequalification of buyers, smoother due diligence, and ultimately the best possible selling price for your business. Since commission is normally tied to the sale price, your broker has the same goal that you do: to sell your company for the most money possible.
BroadCreek has a staff of qualified business brokers and access to a pool of qualified buyers, plus the expertise to advise you on all the financial aspects of your planned sale.
Contact us today to learn how we can maximize the return on your investment for your business.