Archive for May, 2010

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Expectations as a Business Seller

When you deal with business brokers to help you sell your business there are a few things to keep in mind.  You should have some expectations of what business brokers can do for you and what skills they can bring to the table to help you find the right buyer.

One of the main questions you need to ask business brokers is how they will help you prepare your business to be sold?  Will they be able to indicate to you certain actions you can take immediately to help your business shine in the eyes of a buyer?   For instance, can they advise you on how your shop presents?  Perhaps some quick improvements or changes can be made.  They can let you know some of the common questions that are asked by business buyers to help you anticipate what information you will need to prepare.  Example – do you have your financial information in order, have you retained the services of an accountant and lawyer to help guide you through the process and so on.  Experienced business brokers can point out some of the quicker issues that can be resolved immediately before you start meeting buyers.

Business brokers can also help you establish a selling price for your business.  They can guide you through the methodology to derive a fair price.  There are different business valuation techniques that can be used – earnings multiples, asset-based valuation, discounted futures cashflow method, etc.  While you may not need to know the ‘nuts and bolts’ of these techniques used to value a business, good business brokers should make you understand the logic and though process used to determine a selling price.  Also, don’t merely rely on the value a business broker may help you derive.  Talk to your accountant or a business valuator – a good broker should have no problem if you decide to do this.  If they do, then that can be a red flag.

Good business brokers will maintain the confidentiality of the business sale while they find you a good buyer.  Selling a business is a much different process than selling real estate and reputable business brokers should be able to keep your confidentiality intact.

A business broker will help you present your business to business buyers.  They will assist in the communication process and ensure that there is full transparency on the part of the buyer and seller of the company.  Business brokers will be the go-between to ensure no misunderstandings and to make sure all questions are answered.

A business broker will also help in the negotiation between the buyer and seller and properly present the offer to purchases as well as subsequent counter-offers, etc.

During the due diligence process, business brokers can be good intermediaries as well.  Selling a business requires that buyers confirm facts and do a thorough examination of the business.  This can be a lengthy process and complicated or, with the services of competent business brokers, be much smoother and less difficult.  Many deals are lost during due diligence that ultimately resulted in flared passions and misunderstandings.   A business intermediary can help mitigate this.

Please remember that selling a business is a completely different process from selling real estate.  Competent busies brokers are trained and licensed professionals that will help you ultimately realize your business sale, which is the ultimate goal.

What’s the Process?

If you are looking for information on how to sell a business, here is a quick summary of the steps that are usually required.  Selling a business is a much more involved process than selling real estate.  It takes a specific set of skills to properly sell a business to get a fair value.

Listing your Business for Sale with a Business Broker

Meet with a reputable business broker in your area.  Talk to them about the sales process and what they will do to help you sell your business.  Listing your business with a broker is a good decision if you want to sell your business confidentially and want to use the resources of a professional intermediary to guide you throughout the process.

Determine a Selling Price

One of the first things that arises when people ask how to sell a business is the asking price.  This is something that a business broker can help you with for most businesses.  For larger or more complicated businesses you can use the services of a professional business valuator to determine the selling price.  You also need to think about what you are selling – for instance, are you selling the business assets or shares (there are tax implications – most small businesses are structured as asset sales though).  You also need to think about work in progress at the time of the sale and how that will be transitioned and at what price, inventory, accounts receivable, etc.  These are issues you can talk to a business broker about as well as your accountant.  Determining a selling price and what exactly is for sale is an important step in how to sell a business.

Marketing and Advertising

A business broker will plan how your business will be marketed and advertised with the end goal of achieving multiple interested potential buyers while maintaining the confidentiality of the business sale.

Business Information Profile

Business buyers will need a brief ‘snapshot’ of what your business is about – a small ‘teaser’ if you will, to help them decide if they want to learn more.  A business broker with the knowledge of how to sell a business will put together this quick (and very effective) brief snapshot of your business.  It is a short description with one or two lines of general financial performance.  Rest assured, the business identity is not disclosed yet at this point.

Upon showing interest in the business, a potential buyer would then have a conversation with the business broker about themselves, their objectives and what they are looking for.  The broker will ‘qualify’ and screen a potential buyer at this point.  If deemed to be appropriate, a business broker will invite the potential buyer to sign a non-disclosure agreement and then would present the potential buyer with a fuller information package on the business that would include a information on the operations of the business, number of employees, a brief summary of the financial performance and any other pertinent “general” information about the business.  This general information is under strict non-disclosure rules to help ensure confidentiality of the sale.  After reviewing this information, a potential buyer may decide if they want to take their interest to the next level.  This is a major way a business broker can assist you in how to sell a business.

Showing the Business to an Interested Buyer

Presenting a business to a potential buyer is a major step in how to sell a business.  It’s important to present an accurate picture of the business – blemishes and all.  Buyers can be jaded after a while and realize that every business may have their speed bumps so it’s important to be forthright and not sweep anything under the rug, so to speak.  This is, however, the time to ‘show off’ your business’s accomplishments and showcase the hard work you have done to make it a success – this is the time to put your best foot forward and, effectively how to sell a business by being honest – which can be refreshing to some buyers.  There will be a lot of questions at this point from the buyer – try to answer everything you can, within reason though.  It’s important to remember that there is a point where a buyer needs to make a conditional offer and satisfy themselves through the due diligence process.

Getting an Offer and Accepting an Offer

The majority of business offers are conditional offers.  They are can be conditional on many different issues:  confirming some facts during the due diligence process, getting financing, assuming leases successfully, obtaining franchise approval, etc.  A condition offer is usually made with a refundable deposit (if the deal does not go through) and is usually seen as being without risk for the buyer until they waive conditions and go ‘firm’.

Due Diligence

During the conditional offer phase, a business buyer will conduct their due diligence – which is a critical step in how to sell a business.  Here, the potential buyer will confirm facts, go through financials and review the overall business operation very carefully.  If there ever was a time for a buyer to be extra meticulous, this would be it.  The role of the broker would be to help in facilitating the process and be a go-between for the buyer and the seller. 
If the buyer satisfies themselves that everything ‘checks out’ during the due diligence process and waives the other conditions all that is left is to close the transaction – which involves signing documents through respective lawyers and exchanging money.

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What can I expect when dealing with them?

Many people don’t have a clear idea of what business brokerages can do for them, yet they play a crucial role for many business owners and prospective buyers looking to sell or buy.  Buying or selling a business takes a very unique, specialized skill-set that does require a professional that focuses on business sales transaction.  All too often, people make the mistake of confusing the role of a real estate agent to that of a professional business intermediary.  This article will quickly examine the role of business brokerages and how the service of a business sales specialist differs from that of a real estate agent.

The role of Business Brokerages
For a business seller, the expectations for a professional business intermediary (a business broker) are many.  They are required to assist the seller prepare their business for sale, help determine a selling price, prepare an information package on the business, advertise the business (while maintaining confidentiality of the sale), find potential buyers – and screen & qualify them.  They must show the business to buyers.  Facilitate communication between the buyer and seller and ensure that there are no missteps on this front, which often happen.    They must go over conditional offers with a seller and facilitate the negotiation process.  Next comes due diligence, which for a business can be lengthy and complicated if not facilitated smoothly.  Finally, the closing of the business is carefully monitored by business brokerages to ensure a smooth transition of ownership.  Bear in mind that this is merely a (very) high level overview of what is done for the business seller.  Remember that this process can be repeated several times until a buyer is found that actually goes all the way to the end of the purchase (i.e. does not back away).  Selling a business is usually a longer process than selling a piece of real estate as well.

For the business buyer, business brokerages offer many benefits.  They assist with sourcing good businesses for sale, present different options, show different opportunities and help buyers with a purchase offer.  A professional business broker will remain engaged in the process through the conditional offer period, due diligence, waiving of conditions right through to the closing.  Commissions are paid by the seller – there is no direct out of pocket cost to the business buyer when dealing with business brokerages to buy a small business.

Work with a specialist
Business brokerages specialize in the buying and selling of businesses.  Real estate agents focus on the buying and selling of real estate.  There is a major difference and a completely different skill-set involved.  A professional business intermediary must have the expertise in business valuation, financial statement analysis, valuing intangible assets, how to buy and sell business, deeper exposure to laws governing business sales, equipment & premises lease issues, franchise agreements, employee issues pertaining to a business sale, and so on.  Selling real estate is different on a fundamental level.  Business brokerages have professionals with the experience to sell your business properly.  A business is a major investment – dealing with an expert is a wise decision.  There are good business brokers in Canada and Ontario specifically – give us a call to see what we can do for you.