Selling your business to a third party and maximizing its value requires planning, preparation, and commitment. In today’s tight lending environment, that process becomes even more challenging and critical. A successful sale is a structured process rather than a single event.
How to Have a Successful Third Party Sale:
Define your goals and objectives
Understand how businesses are valued
Determine when it is the best time to sell your business
Assemble a team of experienced professional advisors and learn their roles in the transaction
Conduct a presale audit
Learn what factors increase value and marketability
Identify “Off Balance Sheet” assets
Discover how long it takes to sell a business
Factor in current market and financing conditions
If you choose to investigate an outside sale, FBB can arrange a confidential, no-obligation consultation with one of our professional brokers to discuss your specific situation and provide you with a complimentary checklist to assist you in positioning your business for sale.
Why Buyers Should Deal with a Business Broker
Some buyers are initially reluctant to deal with a business broker in locating and buying a business. Usually, this reluctance stems from one or both of the following concerns:
- The hope that, by dealing directly with the seller, the price of the business would be reduced, because no brokerage commission would be involved.
- The fear that the broker will somehow coerce or force the buyer to enter into a transaction against their will.
While it is true that a commission is payable when a broker is involved, unless a separate buyer representation agreement is executed, the commission is paid by the seller. The payment of the commission by the seller may affect the price of the business, but even when a broker is involved, the buyer usually ends up with a better-structured transaction, which, of course, is in the buyer’s best interest. This apparently paradoxical situation occurs because a broker spends a considerable amount of time educating the seller about the local business market. Almost invariably, this educational process results in a purchase structure that is more viable for the buyer and the seller. Experience has shown that for a transaction to work, it has to be fair for both parties.
As to the possible concern that a purchaser would be pressured into buying a business, one only has to look at the business buying process to see that the buyer is not only encouraged, but almost forced, to make an informed decision. A properly drafted offer to purchase contains numerous contingencies, such as attorneys’ and accountants’ reviews. Of course, there is no substitute for integrity. The buyer should be comfortable with the integrity of the associate and the business brokerage office handling the transaction.
Besides addressing the above concerns, there are other reasons for dealing with a business broker. Most sellers are extremely concerned about confidentiality. It is often very difficult for a buyer to determine what businesses are available for acquisition. By dealing with a broker, the purchaser is able to obtain information on a number of businesses from one source.
Many purchasers also need assistance in obtaining financing for a transaction. Securing financing for a business acquisition is a difficult process, especially for an out-of-town buyer. A qualified broker can assist the purchaser in securing the best financing for a particular transaction.
It is important to remember that the business broker is a facilitator, helping the buyer and seller negotiate the details of the transaction, working with advisors, and assisting in closing matters. Like any other advisor, you must be comfortable with the professionalism and integrity of the broker that is working with you.
(originally published in the February 2011 eNewsletter)