How To Sell Your Company
Q. Why is confidentiality important?
As you prepare to put your house on the market, you get the word out to as many people as possible. The “For Sale” sign is placed in the front yard, you invite people into your home during an open house and you put ads in the newspaper and online. You want everyone to know your house is for sale.
However, that’s not the case when selling a business. Place an ad that your business is on the market and people start to wonder. It creates an air of uncertainty that can be detrimental to your bottom line and put the company in jeopardy.
To increase the likelihood of how to sell your company at an optimum price, keep it confidential!
A buyer wants a successful operation with few changes until he or she can make those changes. Too many question marks translates into greater risk and lower purchase offers.
Confidentiality is crucial no matter the size of the company or the type of business. To maintain confidentiality, the professional brokers at the Benjamin Ross Group will market the business in a confidential manner, while providing just enough information to attract the buyers you are looking for. By using the unique Benjamin Ross Group screening process, only serious qualified buyers are introduced to your business.
Q. Why use a business broker/M&A Advisor?
Any business owner who has sold a business on his or her own will tell you it’s a long, tedious and stressful process. It consumes time and distracts you from the day to day operation of the business. When your focus should be on maintaining or increasing the value of your business, all of your time and energy is directed towards the sale process.
This is where the Benjamin Ross Group comes in on how to sell your company:
- Confidentiality. If you, as an owner, attempts to sell your own company, that process alone reveals that the business is up for sale. Employees, customers, suppliers and bankers all get nervous and competitors look to take advantage of the opportunity.
- Business Continuity. Selling a business is time-consuming for an owner who already is probably wearing many hats within the company. By taking on the additional load of selling the business, essential functions will get less attention and possibly damage the business. The owner can maintain focus on running the business when a broker is working on the sale.
- Reaching Potential Buyers. Benjamin Ross Group has the tools and resources to reach the largest possible base of buyers. We then screen these potential buyers to ensure they are qualified.
- Marketing. With years of experience, the Benjamin Ross Group brokers will present your company in the best light to maximize the sale price. We have a great understanding of the key values that buyers are seeking in any acquisition.
- Valuing your Business. Putting a value on a business is a difficult process, with hundreds of variables that have an impact on that value. We have access to business transaction databases that can be used as guidelines or reference points. But the best way for a business owner to truly feel comfortable that he got the best deal is to have several financially viable parties interested in or bidding for his business. This is much more likely using the resources of the Benjamin Ross Group’s professional business brokers.
- Closing a Deal. Since the Benjamin Ross Group broker’s sole function is to sell the business, there’s a much better chance that a deal will be closed in less time. The faster the sale, the lower the risk of employee problems, customer defection and predatory competition.
Q. How to sell your company?
Taking the proper steps to get your business ready for sale can significantly improve the likelihood of a successful sale. For many business owners, the prospect of selling their business after years of pouring every effort into growing the company can be emotional and difficult. That’s a major reason why it pays to structure a plan to prepare for the sale. Remember, it’s crucial to use the same care and patience that you used to grow and sustain your business.
What important steps are needed to prepare your company for sale?
- Determine the company’s actual worth. There are a lot of formulas for valuing a business. Buyers may base a purchase offer at least in part on the value of the assets in a business, the cash flow, gross revenues, annual growth and other factors. The ultimate sale price depends on profits. Determining a true market price is crucial.
- Be sure your records are up to date. You want all of your hard work to pay off in the sale, so be sure you have current, detailed records that provide an assessment of the company’s financial position.
- Engage the services of a professional business broker to help you prepare for the sale.
Always remember that selling a business is a one-time event. Preparation is a key to a successful sale.
Q. When should you think about the Sale of your business?
Selling your business is the ultimate goal of every business owner. You’ve spent years creating something from nothing, invested hours of sweat equity in building it, planning every detail, big and small. You celebrated the successes and laid awake nights worrying when something went wrong.
The simple fact is that most businesses are not properly positioned to sell. Owners are so focused on the day-to-day operations that they do not pay attention to the exit.
By correcting the most common mistakes that most business owners make, you can put hundreds of thousands – in some case millions – of dollars into your pocket. People are leaving significant amounts of money on the settlement table – or not even getting there at all – simply because they are not doing what it takes to prepare their business for sale.
Start planning for your exit the day you open your business. I know that sounds radical, but it is the only way you can assure that you will be rewarded financially for all your hard work.
The professional brokers at the Benjamin Ross Group can assist you with the exit planning process.
Q. How are business sales financed?
There are many ways a business can be financed.
1. Seller Financing. Increasingly, buyers and lenders are looking to the seller for financing as they try to put a transaction together. In such a scenario, the seller will hold a note at an agreed upon interest rate for a specific term.
2. SBA Loans. In the sale of a business, conventional loans usually aren’t available, so a buyer may want to consider going to a Small Business Administration (SBA) lender, which has a number of loan options. The SBA guarantees a portion of the loan. There are many misconceptions concerning SBA loans. At the Benjamin Ross Group, we understand the process very well and will guide you through the process.
3. Mezzanine Financing. In mergers and acquisitions, mezzanine financing is another alternative for a buyer looking for capital. The lenders in this situation are typically high net worth individuals who are expecting a larger return on their investment. They are lending in a junior lien or a position behind the bank and seller financing. The loans are typically made with limited sources of collateral, thus the request for higher interest rates. Again, this financing is often used in funding goodwill or reputation in an acquisition.
Q. What is due diligence?
Merriam-Webster Dictionary defines due diligence as “research and analysis of a company or organization done in preparation for a business transaction.” Due diligence is the process of being sure that things are as they appear before a deal is sealed. You want to be sure everything is reviewed and all questions are answered to your satisfaction.
During the due diligence process, a list of documents should be provided. The list of documents should cover a range of areas, including:
- Legal structure and incorporation of the company
- IRS records
- Insurance policy information
- Organizational structure
- Personnel policies
- Capital and real estate
- Contracts, licenses, agreements and affiliations
- Technology and intellectual property
- Current or potential legal liabilities
- Marketing materials
Q. Will you need to stay on after the sale?
Seller Training – When selling a business there’s a transition (“training” and/or “consulting”) period. Dependent upon the size of the company and the role of the owner the transitions may be as short as a week or as long as a year. In most situations, the buyer wants the seller to remain on board to shorten the learning curve and help with the smooth transfer of key relationships.
In the typical business sale, there is an on-site component to training and then a “telephone consulting period” is added at the end. Also, the seller may additionally be retained as a consultant at a negotiated rate. In some instances, a long-term employment contract is negotiated and the seller maintains daily involvement for a much longer period of time.
For the owner who wants to sell the company and leave quickly, the focus should be on the development of a strong management team. Be sure to introduce key employees/managers to your major customers and vendors and look at ways to delegate responsibilities. The more the customers think they are interacting with “the company” versus the “owner” the easier the transition.
Q. How do I prepare to buy a business?
Ask yourself some important questions. Why do I want to be an owner? What types of activities do I like? What lifestyle is important for me? You’ll also want to be sure to include your family as part of the assessment.
Line up a team of professional advisors. Alert your attorney, accountant and financial advisors that you are looking for a business.
Consider your financial situation. Be sure to carefully consider how much money you need to live off of and how much money you have for a down payment on a business. Your expectations need to be realistic and something that can be achieved by the type of business you are searching for.
Develop a personal financial statement. The personal financial statement should show your assets and liabilities and possibly include a supporting statement from your banker or accountant. Be prepared to share this document with the business intermediary who is working with the seller. If you are planning to work with other investors, identify them and create a group financial statement.
Create a profile. Sellers want to be sure their business will continue to be successful. They want to find a buyer who has experience and will take care of the company’s employees. Really, you are selling yourself to the current business owner(s) and the professional team that represents the seller.
Establish your criteria for acquisition. Most buyers have no industry experience in the business that they purchase. Buyers purchase companies based on geography and cash flow. They tell us “I want to stay within so many miles of my house and I have a certain amount as down payment money and I need to make a certain amount each year”. Have an open mind. If you can apply your general business operations, financial and or marketing experience to a business, and the owner is not the main technician in the business, then the industry should not matter. If you are interested in buying an existing business, you want the business intermediary to be selling you to the seller. It’s important that you demonstrate that you’re a qualified, motivated buyer. Being prepared and serious about your search is an important initial step.
Q. What are the benefits of buying versus starting a business?
So you want to be your own boss. Consider the options: start your own business or buy an existing company.
Certainly there are pros and cons to each option. If you do a careful analysis, you’ll learn what many seasoned entrepreneurs have discovered … the risk-to-reward ratio is tipped in your favor when you purchase an existing business.
Starting a business of your own can pay great dividends, but it’s important to understand that the risks are significant. Most start-up businesses will falter and eventually die. According to Michael Gerber, author of The E-Myth Revisited, 40 percent of new businesses fail in the first year and 80 percent fail within five years. On the other hand, purchasing an existing business reduces an entrepreneur’s risk while creating opportunities for tremendous profit.
There are a number of reasons to consider the purchase of an existing business rather than starting one:
- Proven Concept. Buying an established business is less risky – as a buyer you already know the process or concept works.
- Brand. You’re buying a brand name. The on-going benefits of any marketing or networking the prior owner has done will transfer to you. When you have an established name in the business community, it’s easier to attract new business than with an unproven start up. That’s an intangible benefit that’s difficult to put a price on.
- Relationships. With the purchase of an existing business, you will also be buying an existing customer base and vendor base that took years to build.
- Focus. When you buy a business, you can start working immediately and focus on improving and growing the business immediately. The seller has already laid the foundation and taken care of the time-consuming, tedious start up work. Starting a new business means spending a lot of time and money on basic items like computers, telephones, furniture and policies that don’t directly generate cash flow.
- People. In an acquisition, one of the most valuable and important assets you’re buying is the people. It took the seller time to find those employees, develop them and assimilate them into the company culture. With the right team in place, just about anything is possible and you will have an easier time implementing growth strategies. Plus, with trained people in place you will have more liberty to take vacation, spend time with family, or work on other business ventures. When start-up owners and independent contractors go on vacation, the business goes, too.
- Cash flow. Typically, a sale is structured so you can cover the debt service, take a reasonable salary, and have some left over to take the business to the next level. Start up owners, on the other hand, often “starve” at first. Some experts say start-ups aren’t expected to make money for the first three years.