| Did you know that in 1978 it only took 57 days | | | | growth of the business, the industry trends, and |
| to sell a business? Compare that to today, when | | | | potential issues that may cause problems down |
| you'll see three out of four businesses NEVER sell, | | | | the road. Full disclosure is vital to your successful |
| and the average time to sell is almost a year. | | | | sale because if there's a problem or issue, the |
| There are ways that you can more effectively | | | | buyer WILL find it during the due diligence phase. |
| sell your business. This article outlines a 5-phase | | | | As you can imagine, your business broker will |
| strategy for selling a business more easily and | | | | spend a great deal of time preparing your |
| with less hassle. | | | | marketing package. However, the hard work |
| The Upfront Work | | | | that's put into this phase will reap great rewards in |
| You'll see below that what you do before you | | | | terms of the price and terms you get for the |
| start to sell a business is as critical as what you | | | | sale. |
| do once you put your business on the market. | | | | As your broker is creating the marketing |
| Preparation is critical to successfully selling a | | | | package, he'll simultaneously be putting together a |
| business, as is having a clear and concise process. | | | | pre-screened list of potential buyers. |
| A good business broker will understand this, and | | | | While many brokers send information to potential |
| won't have you sign a contract until you fully | | | | buyers one at a time, you'll want to find a broker |
| understand how businesses get sold today. | | | | who contacts all potential buyers simultaneously. I'll |
| Phase I - The First Meeting | | | | explain why in a moment. This list should be |
| Those business owners who take the time to do | | | | reviewed with you before any materials are |
| all the preparatory work of selling a business | | | | distributed. |
| stand a much greater chance of actually selling, | | | | Step 3: Market the business |
| and will sell for more money with better terms. | | | | This is where things get interesting. Your broker |
| In the first meeting, your business broker and | | | | will send all potential buyers a short message |
| you will discuss your financial history, your | | | | (phone, email, mail) announcing the availability of |
| employees, and your market. He'll try to | | | | your business. Your broker may also list your |
| understand where you're strong in the market, | | | | business for sale on one or more online "market |
| and where your competition is stronger. Ideally, | | | | places" that list businesses for sale. While these |
| he'll already know your market, perhaps better | | | | can work well for small businesses, they are far |
| than you. | | | | less effective for the "middle market" (businesses |
| The goal of the initial meeting is to see what you | | | | that sell for over $1 Million). |
| need to do to make your business attractive to | | | | What they receive is a "blind summary" that gives |
| buyers. It's a waste of your time (and money) to | | | | them enough information to decide whether to |
| just sign up with a broker because he says he'll | | | | proceed and get additional information. Your |
| get your asking price. Remember that 3 out of 4 | | | | privacy is protected, and they won't discover who |
| businesses don't sell because they're not in a | | | | you are until they've signed a non-disclosure |
| position to sell. | | | | agreement and have demonstrated that they |
| Your broker should give you an honest | | | | have the financial means to buy your business. |
| assessment, and let you know if you need to go | | | | That final step of demonstrating financial ability is |
| back and add value to your business before | | | | even more important today than it's ever been in |
| proceeding. | | | | the past. |
| Once you're ready, you'll move to Phase II. | | | | Step 4 - Refine the buyer list |
| Phase II - Learn More, Do Research, and Add | | | | Now, you'll choose a short list of potential buyers |
| Value | | | | with whom you'll want to move forward. Ideally, |
| Phase II is where your business broker starts to | | | | you'll have at least two and up to four or five |
| take over. He or she will do a tremendous | | | | very good buyers. These are the buyers who |
| amount of research, including analyzing five years | | | | truly understand the value of your business, and |
| of your financial records. He'll perform a financial | | | | are in a good position to move forward with the |
| recast for you, research what has recently sold in | | | | sale. |
| your area or market, and then hand you a short | | | | Step 5 - Meet with the potential buyer(s) |
| list of specific ways that you can add value to | | | | Now, your broker and you will meet with the |
| your business before putting it on the market. | | | | potential buyers for an hour or two. They'll want |
| This phase is crucial to your success. You'll take | | | | to get a better understanding from you about |
| the time to "recast" your financials into reports | | | | your business, the opportunity, and the risks. |
| that are easily digested by potential buyers and | | | | They'll ask some very pointed questions, which is |
| their banks. You'll want to put all your financial | | | | why you should spend so much time up front in |
| records in terms that enable them to quickly see | | | | preparation. |
| if the business will give them the profit and | | | | Any objections or issues they uncover may |
| income they want. | | | | cause them to turn away or bid a lower price. |
| Taking the time to add value, even if it's just on | | | | Step 6 - Put the business up for auction |
| paper, can make or break your sale in the long | | | | Your goal is to create a "bidding war" for your |
| run. You won't have to do everything your broker | | | | business. You've talked with two or three buyers, |
| successes, but it's a good idea to at least clean up | | | | and each is convinced that they'll benefit from |
| your financial records so that there are no hidden | | | | owning your business. |
| problems for the buyer. | | | | They'll submit bids, all at the same time. You |
| In Phase II, you'll decide when will be the right | | | | provide a specific date for bid submission so that |
| time to sell your business. It may turn out that | | | | all bids arrive at the same time. |
| the best time for you to sell is five or more | | | | This enables you to easily compare all the offers |
| years down the road, after you've done all you | | | | that are on the table, see how they stack up |
| could to build value and prepare yourself and your | | | | against each other, and make a wise selection in |
| family for the sale. | | | | choosing the best offer that also has the best |
| Everything has to be put on the table during this | | | | likelihood of completing! |
| phase. You want to provide the buyers with all | | | | Phase IV - The Due Diligence Phase |
| the information they need to make educated | | | | The due diligence phase of selling a business is |
| decisions about buying or not buying your | | | | really the toughest part, and it's where most deals |
| business. Time spent wisely in this phase can cut | | | | fall apart. The reason you spend so much time up |
| months off of the due diligence phase. | | | | front, and why you fully disclose the good, bad, |
| Phase III - Marketing Your Business to Buyers | | | | and ugly about your business is that buyers WILL |
| There are six distinct steps in this phase. | | | | find all the issues during this phase. |
| Step 1: Get the agreement signed | | | | You run the risk of the buyer backing out or |
| You should not have signed an agreement with | | | | reducing their offer to compensate for the new |
| your business broker before this phase. Why? | | | | issues they've uncovered. Remember that the |
| Remember that I said that you might not be | | | | buyer's attorneys and bankers are actively looking |
| ready to sell for a few years? Your agreement | | | | for potential problems and risks, so if you've |
| with the broker is a short-term (usually a year) | | | | already disclosed everything, they will have |
| contract to sell your business. It's in yours and | | | | nothing to find. |
| your broker's best interest to only sign the | | | | They'll do financial audits, environmental audits, |
| agreement when you're ready to sell. | | | | information technology audits, and generally invest |
| Step 2: Create the marketing materials and | | | | quite a bit of time (months in some cases) looking |
| package | | | | through your business. |
| When you're ready, your broker will create a | | | | Phase V - Closing the Deal |
| marketing package that contains everything | | | | Usually, the final phase starts at the same time as |
| prospective buyers need to make a go/no go | | | | the Due Diligence phase. You'll get all the |
| decision. | | | | paperwork in order, conduct final negotiations, |
| The marketing package is a 50+ page "book" that | | | | draft additional agreements and exhibits, and get |
| includes all your relevant financials, detailed | | | | everything ready to go for signing and closing of |
| information about your business, information about | | | | the deal. |
| your employees and company, and even photos | | | | Then, once the funds have been put into your |
| if applicable. | | | | bank account, you can start the party! |
| You'll include relevant plant information, equipment | | | | For more information about selling your business, |
| lists, leases, and contract arrangements. You'll also | | | | please contact Kris Karlson at Bowman/Hanson, |
| provide relevant information about the potential | | | | California Business Brokers. |