Selling a Business… By-Owner? Or… Hire a business transfer intermediary

This poll was commissioned by the Authorized Business Buyer Advocates® who are licensed by “Partner” On-Call Network®.

Info about the Pollster

“Partner” On-Call Network LLC and its licensed Authorized Business Buyer Advocates ® provides business consulting to small and midsize businesses and is a networking venue for company sellers, business brokers and other professionals who represent or serve business buyers and sellers.

Our goal is to introduce some of the best sellers to the best buyers. We also are a meeting place and matchmaking service for professionals, sources of funding and other players on the small and midsize buy/sell playing field. And we provide access to how-to info that is useful to buyers, sellers, dealmakers and their advisors. The company is owned by Ted J. Leverette, The Original Business Buyer Advocate ®. He’s been in the dealmaking business since the 1970s.

“Partner” On-Call Network LLC is not a business brokerage.

We might be able to refer you to some of the best business brokers and/or other advisors who specialize in dealmaking on behalf of sellers in the USA and Canada. Inquire at partneroncall@comcast.net.

Process to Sell a Business

While the goal is similar among business transfer intermediaries and other professional advisors to sellers, the means by which they achieve their goal may differ. The basis of what you are about to read is the 500 year collective experience of a network of consultants and dealmakers. This group consists of business brokers/intermediaries, specialty advisors to businesses for sale by-owner, and Authorized Business Buyer Advocates®. These professionals independently own and operate offices in the USA and Canada. Their proprietary client service system was developed by Ted Leverette during the 1970s. Today it represents the state-of-the-art.

The perspective of this report derives from the view of business transfer intermediaries and other professional advisors to sellers. But marketplace realities influence the thinking and activity among these agents and advisors. By necessity, what is important to the sellers of small and midsize businesses is important to agents and advisors. The opportunity available to agents and advisors is proportional to their ability to convey to business sellers what sellers need.

We don’t have access to the systems, protocols and other information in use by all agents and advisors. But we do have permission from Partner” On-Call Network, LLC, the originator of the 36- Step Process to Sell a Business TM and BIZFIZBO ® (business for sale by-owner) to frame, for you, what you are now reading. POCN is not a business brokerage. POCN’s independently owned and operated offices in the USA and Canada collaborate with some of the best business brokers/intermediaries and professional advisors to achieve done deals.

Poll: Why do sellers hire business brokers instead of trying to sell by-owner?

62 reasons are why sellers of small and midsize businesses hire business transfer intermediaries (i.e., business brokers and advisors who specialize in dealmaking on behalf of sellers), according to our poll, conducted in the USA and Canada (plus a few contributors from around the world).

The top reasons are these:

Brokers know how to sell businesses; most sellers don’t 24%
Seller doesn’t want to be distracted from running business 16%
Confidentiality preservation and knowledge of what/when to show buyers 14%
Access broker’s database of potential buyers and investors 13%
Maximize price buyers will pay for the business 9.%
Owner does not know how to find buyers 8.%
Prepare owner to sell and prepare business for sale 5.%
Broker understands and can depersonalize negotiations 5.%
Explain and handhold seller throughout selling process 2.%
Owner afraid of trying to sell by-owner 2.%
Help buyer obtain financing 2.%
= 100%

Shown in this report you will find all the reasons, each categorized into the major classifications of activity necessary to sell a business.

But first let’s be sure you understand the context in which we prepared this report.

We are coming from two views:

The reasons why sellers need help to sell their business pertain to both types of service providers, but the scope of service and delivery method differs between sales intermediaries and professional advisors.

Depending on the type and size of business for sale, marketplace realities and the owners’ reason and motivation to sell, the companies’ divesture team may consist of various practitioners, such as:

THE GOAL

Whether sellers hire a business broker or sell by-owner, the goal is to prepare and package the business so it sells faster, at a higher price and on better terms than are probable without assistance from service providers. Service providers deploy their proprietary means and methods; they educate and guide sellers through every step (within their scope of expertise). This enables marketing and dealmaking to progress in the optimum sequence.

CLASSIFICATIONS OF ACTIVITY

This part of our report takes a more inclusive view than the way we posed the poll question: “Why do sellers hire business brokers instead of trying to sell by-owner?”

We change the question to this: Why do sellers hire business transfer intermediaries and/or other professional advisors?

The reason we phrased the question as we did, in the poll, pertains to perspective. From the view of business transfer intermediaries and other professional advisors, they might pose the question like this: “Why should a business owner hire a business broker or M&A firm to sell their business?”

But from the view of the owners of small and midsize businesses, who are thinking about selling the company, the question is more accurately phrased like this: “Why do some sellers hire business brokers instead of trying to sell by-owner?”

Most potential sellers wonder whether they should try to sell their business themselves.

And the reasons sellers give for hiring business transfer intermediaries and other professional advisors are much more numerous than the reasons stated by most business brokers and intermediaries.

For example, from our research (so far) of business brokerage websites and articles we’ve discovered on the topic, 20 is the maximum number of reasons brokers cite.

Our goal, in this report, is to reduce the gap between the quantity and type of reasons communicated by business transfer intermediaries versus the reasons communicated by business owners and sellers.

We think sellers, business transfer intermediaries and other professional advisors will make more informed decisions when they market whatever it is they want to sell if all of them have the full deck of cards, which our report reveals. The larger the perspective and information, the greater the probability of selling businesses for sale.

So far, thanks to input from business owners and sellers, and business transfer intermediaries and other professional advisors, we’ve collected 62 reasons.

Okay, on to the rest of this report…

The reasons are categorized into the major classifications of activity necessary to sell a business.

The reasons are shown only once but some of them are pertinent to more than one classification of activity. The reasons are listed alphabetically; you can decide the relative importance of each of them.

Marketplace Realities

Up to 80% of businesses for sale, which sell, are sold by-owner… depending upon the industry, size of business, profitability and reason for sale.

Sellers that hire the right business transfer intermediary and/or other professional advisor report selling their business at a higher price and on better terms than, arguably, is usually achieved by businesses sold by-owner.

Should sellers of small and midsize businesses sell by-owner… or list their business for sale with a business broker/intermediary? It depends. This report will help you decide.

There are probably more than the 62 reasons shown in this report.

Why do sellers hire business transfer intermediaries and/or other professional advisors?

1. Broker or advisor understands and can depersonalize negotiations
2. Brokers and some advisors know how to sell businesses; most sellers don’t
3. Compensation basis is commission upon sale or partially contingent upon done deal
4. Most buyers start with business brokers and Internet searches
5. Understands local marketplace of businesses for sale
6. Understands seller’s industry

Business transfer intermediaries of all types function as go-betweens; they can filter communications so all parties to the pending transaction can focus on the most salient points and realistically negotiate differences of opinion. It is normal for conflicts to arise between sellers and buyers (and their advisors). Sometimes it pertains to personalities; and maybe differing goals or misunderstandings about facts. The best business transfer intermediaries can help people understand the facts and find win-win compromises instead of becoming unnecessarily defensive.

Pricing Businesses for Sale

Sellers of small and midsize businesses may not need to hire an independent appraiser to value the business enterprise or its assets. But sellers might want to do so. Professional guidance can be the irrefutable remedy when a seller, broker, buyer or source of financing disagrees on the selling price for the business.

Appraisers are not the only source of credible information, which sellers can use to price businesses for sale. Some business transfer intermediaries and other professional advisors access national databases of business sale statistics. This enables sellers to price their business from many points of view. This technique gives sellers more flexibility when they decide on their asking price and the terms of sale. Actual sales price information from credible third parties is a powerful persuader when a buyer asks sellers to justify the sellers’ price.

Why do sellers hire business transfer intermediaries and/or other professional advisors?

7. Define best probable price and terms before going to market
8. Determine best offer price
9. Determine best selling price
10. Financial analysis and recasting by broker or advisor
11. Owner doesn’t know the probable price buyers will pay

Diagnostic Exam of the Seller and the Business

Selling a business may take longer to sell than sellers anticipate because of what they don’t know. What sellers don’t know can result in a lower sales price and less favorable terms. Fresh insight from business transfer intermediaries and other professional advisors into the seller’s business highlights what will appeal to a buyer, and identifies what will not make a favorable impression. A diagnostic exam by a business transfer intermediary and/or other professional advisor can create a blueprint for action. Attractive features of the seller’s business become cornerstones of the strategy used to market the business for sale. Business transfer intermediaries and other professional advisors can recommend correction to some parts of the seller’s business, so a potential buyer has fewer negative items upon which to justify a lower price or unfavorable terms.

Why do sellers hire business transfer intermediaries and/or other professional advisors?

12. Owner afraid of trying to sell by-owner
13. Owner does not have relevant capability to sell by-owner
14. Owner does not have time to try to sell by-owner
15. Owner does not know how to find buyers
16. Owner needs quick sale due to pressing crisis
17. Owner referred to broker or advisor by happy seller
18. Professional advisor recommends owner hire broker or advisor
19. Seeing the business from the perspective of buyers
20. Seller does not have a network of contacts with access to buyers
21. Seller does not understand the implications between strategic and financial buyers
22. Seller doesn’t want to be distracted from running business
23. Time savings broker or advisor provides sellers
24. Using broker is the only way sellers know about

Preparing the Seller and the Business for Sale

One of the most difficult tasks sellers face, besides discovering how a buyer will perceive the seller’s business, is knowing which weak parts of the business to correct. Some improvements are more important. Prioritizing change is critical because each improvement can impact the business in many ways. Business transfer intermediaries and other professional advisors can help sellers identify the business’ weak links. And then recommend only the essential changes in a sequence that has maximum impact—so sellers get the biggest bang for their buck.

Why do sellers hire business transfer intermediaries and/or other professional advisors?

25. Coach sellers to answer buyers’ questions and concerns
26. Compile necessary information about your business
27. Dealmaking team: Referral to accountants, appraisers, brokers and lawyers
28. Determine best time to offer business for sale
29. Develop marketing strategy and plan its implementation
30. Maximize price buyers will pay for the business
31. Minimize interference with seller’s management of company
32. Negotiating strategy
33. Prepare two versions of the business profile (teaser and full)
34. Prepare owner to sell and prepare business for sale
35. Reconcile differences between tax returns and financial statements
36. Wants to get the highest price

Merchandising Businesses for Sale

Failure to properly package or merchandise the business for sale causes it to take longer to sell (if it sells), and it will sell for less money on less desirable terms. Most business owners are good at managing their company, but it is the rare owner who is expert at managing the sale of a family business. When sellers attempt to deal directly with a buyer, the buyer discounts virtually everything the sellers claim, unless an independent third party has participated in the gathering and analysis of information about the seller’s business.

Business transfer intermediaries and other professional advisors can establish a strategy to market the seller’s business. They can help prepare written sales materials, such as an offering prospectus; they can estimate the most probable price range within which the business will sell. Business transfer intermediaries and other professional advisors can teach sellers how to answer questions the buyer will pose, and tell sellers the questions sellers should ask buyers. If sellers want to hire a broker, professional advisors can show sellers how to select the right one for the seller’s type of company.

Why do sellers hire business transfer intermediaries and/or other professional advisors?

37. Access broker or advisor’s database of potential buyers and investors
38. Advertising run and paid by broker
39. Affiliated brokerage or advisory offices may attract more buyers
40. Brokers and advisors enable buyers and sellers to access a broader pool of potential partners
41. Buyer competition: Create and manage it
42. Confidentiality preservation and knowledge of what/when to show buyers
43. Disclose, to buyers, sensitive information about the business
44. Initiate contact with likely purchasers
45. Intermediary can speak for sellers
46. Qualify and screen buyers
47. Reduce frustration during offering and sales process
48. Seller fears adverse effect if premature disclosure (about sale) to key employees and lenders
49. Showcase the seller’s business to buyers

Analysis of Purchase Offers

Business transfer intermediaries and other professional advisors can critique purchase offers. They can identify areas where sellers should pay particular attention in structuring a counteroffer or preparing the contract of sale. They can also prepare, for the business, an estimate of net proceeds of sale and a post-sale cash flow analysis.

Why do sellers hire business transfer intermediaries and/or other professional advisors?

50. Business advice re contracts (exclusive of legal advice)
51. Brokers and advisors have broader third-party prospective from done deals and failed deals

Dealmaking

Why do sellers hire business transfer intermediaries and/or other professional advisors?

52. Assistance during escrow closing
53. Background check on potential buyers run by broker or advisor
54. Broker or advisor can confer with seller, legal and tax counsel about terms of sale
55. Continual followup with buyers for decisions
56. Control buyers: Brokers and some advisors know what is appropriate and inappropriate
57. Deals almost die numerous times; Brokers and some advisors know how to revive them
58. Explain and handhold seller throughout selling process
59. Help buyer obtain financing
60. Mediate and negotiate with buyers
61. Receive, present and help evaluate purchase offers
62. Unsolicited offer from a buyer requires expert help

Want To Sell A Business? Do This.

Buyer expectations. Whether businesses for sale are for sale by-owner or are represented by a business transfer intermediary or other professional advisor, buyers expect the following type of information to be disclosed to the buyer at the most appropriate time.

Where you start determines where you end up. A chain reaction occurs once you begin the process of selling your business. It is difficult to stop it. You can be swept along to your detriment in the wrong direction if you’re not totally prepared.

It’s a balancing act. You want to sell but it takes time to prepare and handle the selling process. And you have a business to manage and a life to live.

Don’t naively think you can delegate the selling process to just anyone. A large portion of your net worth may be at risk. It’s important that you carefully manage your business during the time it is for sale, perhaps better than you ever have managed it. You must also correctly handle each step of the process to sell a business.

Unless you’re expert at selling businesses and have the massive amount of time it takes to prepare your business for sale, hire an expert to handle some of the tasks. Business transfer intermediaries and other professional advisors can show you how to be efficient in the tasks you want to handle. Don’t try to do-it-all-yourself unless you are positive you can do it right.

When is the best time to sell your business? Why risk money, and the blood, sweat and tears you’ve invested in your business? When it’s time to cash out, you must know how to get out— quickly—without leaving money on the table. It takes preparation and timing. Business transfer intermediaries and other professional advisors can show you how to do both, so you get the best deal.

Why are you selling? If you give the wrong answer, you may not sell your business. If you give the right answer in the wrong way, it may take a long time for you to sell and you will not get the highest price.

Appearance is everything! How a buyer perceives your business is more important than what you think about your business.

There is a “best” buyer. Your business will sell more quickly and on better terms if you communicate with buyers who do not pose a competitive threat. Look for buyers who are actively searching for a business like yours. And find out early in your communication whether the buyer has sufficient financial and managerial capability to buy your business—right now.

Business transfer intermediaries and other professional advisors will show you how to excite buyers about your business (without identifying it too soon) and how to screen buyers before you reveal trade secrets.

You’ve worked too hard and too long to risk everything.

There is a process to sell your business.

Learn it; use it if you choose to sell by-owner.

Or list your business for sale with the right broker for your type and size of business.

THE PROCESS TO SELL YOUR BUSINESS

You’ve already seen the process to sell a small or midsize business. It consists of the classifications and the reasons why sellers hire business transfer intermediaries and/or other professional advisors.

Here again are the classifications of activity (i.e., the divisions of work). We rephrase them here as action steps. And realize that the sequence of events might change depending upon the circumstances of each business for sale.

EASIER TO SELL A BUSINESS IF IT’S A WORTHWHILE INVESTMENT

Before you try to sell your business, try to make it more attractive to buyers (and more profitable and enjoyable for yourself). Increase the value of your company.

The best consultants to small and midsize businesses have “plug-in” tools that enable clients to increase their company’s net cash flow. Some of them work within one week. Some take longer. But almost nothing takes longer than trying to sell a business that is not ready for sale.

Here are a few things you can do to increase the marketability and value of your company right away.

1. Begin seeing your business as a buyer will view it. Focus on the future. What will your business look like in a year?
2. Improve your financial ratios to be in line with or better than the average of other businesses in your industry.
3. Change your method of accounting to maximize the amount of profit you report.
4. Make an effort to increase productivity (without adversely affecting employee morale).
5. Review every expense; look for ways to cut costs.
6. Eliminate activities that have more downside risk than upside potential.
7. Do NOT do anything that gives your business a short term benefit at the expense of your business’ future. A buyer will detect short term fixes that can impair the long term, which means your business won’t sell or it will sell for less than it would have if you weren’t so short-sighted. (The right consultant can help you decide what to do and what not to do.
8. Investigate opportunities to increase revenue and profit by adding products or another product line, expanding geographically, growing by acquiring another business, diversifying your customer list and/or raising prices.

“EAT-TO-BEAT” YOUR COMPETITION

Let’s face it. Growing your company by “fighting” your competition is the hard way.

Whenever you get a competitive advantage, your competitors copy you. When you “steal” their customers or employees, they do the same to you. When you launch a new marketing program, it takes time and money before you know whether it succeeds or fails. This is business-as-usual for the typical owner.

The street-smart owner uses a better way to grow a company and increase personal net worth:

It’s what the big boys (and girls) do. You can do it too, with the right guidance.

When done correctly, company growth by acquisition is faster, safer, cheaper and more profitable than investing more in marketing to increase revenue.

Of course, buying a business is risky. But it doesn’t have to be.

In the 1970s Ted J. Leverette, president of “Partner” On-Call Network LLC, created the concept of Business Buyer Advocacy TM. You can benefit from the 500 year collective experience earned in the USA and Canada from his network of licensed Authorized Business Buyer Advocates®.

An Authorized Business Buyer Advocate can introduce you to companies for sale you can’t find on your own and then help you achieve a win-win deal.

And then it will be more pleasant and profitable someday when you try to sell by-owner or list your business for sale with a broker/intermediary.