Business Continuity

Business, Ask An Expert.

Selling your business - why use a business broker - perhaps the most important business transaction you will ever pursue is the sale of your business. The purpose of this article is to answer the questions - Why would I use a business broker and what am I getting for the fees I will pay?

Many business owners attempt to do it themselves and when asked if they got a good deal, many respond with" I think so, " or" I got my asking price, " or" I really don' t know, " or" It was a disaster. " Often times these very capable business people approach the sale of their business with less formality than in the sale of a home. - confidentiality. Employees, suppliers, customers, and bankers all get nervous and competitors get predatory. If an owner tries to sell his own business, that process alone reveals to the world that his business is for sale. The business broker protects the identity of the company he represents for sale with a process designed to contact only owner approved buyers with a blind profile - a document describing the company without revealing its identity. That generally eliminates the tire kickers and deters behaviors detrimental to the seller' s business. In order for the buyer to gain access to any sensitive information he must sign a confidentiality agreement.

Business Continuity. - the business owner is already performing multiple functions instrumental to the success of his business. Selling a business is a full time job. By taking on the load of selling his business, many of those essential functions will get less attention, sometimes causing irreparable damage to the business. Time to Close. The owner must maintain focus on running his business at its full potential while it is being sold. Since the business broker' s function is to sell the business, he has a much better chance of closing a transaction faster than the owner.

Large Universe of Buyers. - the faster the sale, the lower the risk of business erosion, employee problems and, customer defection predatory competition. Business brokers subscribe to databases of businesses that enable them to screen for buyers that are in a certain SIC Code and have revenues that would support the potential acquisition. Marketing. In addition they maintain databases of high net worth individual buyers and have access to private equity groups databases that outline their buying criteria. A business broker can help present the business in its best light to maximize selling price. Higher EBITDA= higher selling price.

He understands how to recast financials to recognize the EBITDA potential post acquisition. - he understands the key value drivers for buyers and can help the owner identify changes that translate into enhanced selling price. The value of a business is far more difficult to ascertain than the value of a house. Valuation Knowledge. Every business is unique and has hundreds of variables that effect value. The best way for a business owner to truly feel comfortable that he got the best deal is to have several financially viable parties bidding for his business. Business brokers have access to business transaction databases, but those should be used as guidelines or reference points.

An industry database may indicate the value of your business based on certain valuation multiples, but the market provides the real answer. - most business owners that act as their own business broker get only one buyer involved - either another business that approaches him with an unsolicited offer or a referral from his banker, or outside attorney, accountant. An industry database, can not put, for example a value to a particular buyer on a key customer relationship or a proprietary technology. Just look at the additional billion plus dollars of value created for MCI shareholders because of the competitive bidding between Verison and Quest Communications. Most corporate buyers have acquired multiple businesses while sellers usually have only one sale. Balance of Experience. In one situation we represented a first - time seller being pursued by a buyer with 26 previous acquisitions.

The inexperienced seller will be negotiating in the dark. - buyers want the lowest price and the most favorable terms. To every term and condition in the buyer' s favor the buyer will respond with, "that is standard practice" or" that is the market" or" this is how we did it in ten other deals. " By engaging a business broker the seller has an advocate with a similar experience base to help preserve the seller' s transaction value and structure. Business brokers can save the seller significantly on professional hourly fees by managing several important functions leading up to contract. Maximize the Value of Seller' s Outside Professionals. His compensation is usually comprised of a reasonable monthly fee plus a success fee that is a percentage of the transaction value.

In the absence of the business broker that sometimes - exhaustive negotiation process would default to the outside attorney. - the business broker and seller negotiate with the buyer the business terms of the transaction( sale price, seller financing, down payment, etc. ) prior to turning the purchase agreement over to outside counsel for legal review. It is not his area of expertise and could result in significant hourly fees. The sale of a business is an emotional process and can become contentious. Maintain Buyer - Seller Relationship. The business broker acts as a buffer between the buyer and seller.

Often buyers want sellers to have a portion of their transaction value contingent on the successful performance of the company post closing. - this not only improves the likelihood of the transaction closing, but helps preserve a healthy buyer - seller relationship post closing. Buyer and seller need to be on the same team after closing. The eventual selling price averaged over 20% higher than the first offer. Our experiences with businesses that engaged our firm as a result of an unsolicited offer from a buyer have been quite instructive. In no case was the business sold at the initial price.

The business broker led sale helps maximize sales proceeds by involving a large universe of buyers in a competitive bidding process. - to conclude, the business broker helps reduce the risk of business erosion with improved confidentiality while allowing the owner to focus on running the business. Finally, the business broker can improve the likelihood that the sale closes by buffering buyer - seller negotiations and by balancing the experience scales.