“Independent business owner” is a term that can have several meanings. While “independent” can be used literally to describe the business, it can also define the personality of the owner – and in a sale, that can be a mixed blessing.
Think about the traits that made you a successful business owner. Things like “confident,” “self-assured,” “strong-willed” and, yes, “independent” likely spring to mind. They are vital attributes in building a business, but they can create obstacles in selling a business.
Most business owners have ample experience in selling products or services and making deals. After years of experience with customers and suppliers, it’s not surprising that owners tend to approach selling a business with the same approach and tactics. However, most sellers who have spent years building a successful business are often unaware just how different the process of selling a business is from successfully running it.
The Importance of the Sales Process
A successful M&A broker’s proven process for selling a business will generate the most successful results for the seller. This professional process works for selling a manufacturing business, spinning off a corporate division, or for divesting service companies.
Most savvy business sellers realize early on that developing a selling approach that is faithful to that proven process will depend on the guidance and experience of the M&A professional, whether they are an investment banker, M&A intermediary or, for smaller deals, business broker. From the moment the seller fully buys into the process and embraces the M&A professional’s guidance, the seller is free to benefit from their personal strengths, rather than letting those strengths possibly interfere with the selling process. The following strong selling points are guideposts on the road to a successful business sales transaction.
Pricing Your Business To Sell
Business sellers are generally good business people – after all, they have built and run a successful business. When it’s time to sell, they naturally tend to want the highest possible price and terms, and that is when many sellers first become aware of the difference between (a) selling products or services and (b) selling the business that provides them.
Realistic pricing is perhaps the most important factor in selling a business from a point of strength. It is essential to understand the marketplace as it is currently – not at some high-water mark reached in the past or that might be possible at some point in the future.
Arriving at the right market price and ensuring that the business will not be underpriced depend on industry-tested business valuation techniques that incorporate many tangible and intangible factors – not the least of which is the intensity of buyer interest in a particular business.
Know Your Buyer
Locating and qualifying business buyers is a key function of a successful M&A advisor, who will apply databases, professional associations, and other national and international networks to increase the odds of selling a business at top value to the “best fit” buyer.
While sellers are adept at dealing with customers and vendors in their particular industry, they often are not nearly as up-to-speed when it comes to sizing up potential buyers of their business. There are some “buyers” who are really just professional window-shoppers – always willing to look at a business that’s up for sale and talk a good game, but in the end are never ready to play ball. There are other buyers who absolutely would play ball – if only they knew where the game was.
M&A advisors will seek to pair the right buyer with the right business by focusing on those prospects that are both financially qualified and genuinely interested in the business for sale. Part of this process of qualifying buyers will help assess the ability of a particular buyer to run a business successfully.
That helps to ease the fears sometimes associated with seller financing, which is often a necessary part of a successful business sale. This invaluable work by the M&A professional not only locates the best buyers; it also delivers a huge benefit to the seller because the seller can concentrate on his role in running the business successfully throughout the selling process.
Preparing Your Business for Sale
Business owners are naturally very accustomed to handling the paperwork that comes with running a successful business, but few have had exposure to the highly specialized asset purchase agreements and other forms required before and during the business selling process. M&A professionals are experts in those transaction details, which will in turn help guard against delays, issues and premature or inappropriate disclosure of information.
It almost goes without saying that the business needs to appear clean and cared-for. Beyond that, there are critical steps the seller must take before putting a business on the market. Sellers should be open about all aspects of the business that might affect the sale in order to prevent deals from self-destructing when the real facts come to light.
In most instances, a business will sell based on the numbers. Your M&A professional will help you create a clear financial picture of the business in a timely manner and prepare statements suitable for presentation to qualified prospective buyers. It is important to realize that, while buyers may be willing to buy based on potential, they do not want to pay extra for that potential.
Maintain Normal Operations
It is vital that the business seller stays on top of the day-to-day running of the business, to ensure that the financial picture remains the same or improves while the business is on the market. When a business intermediary is on hand to focus marketing the business for sale, the seller can focus fully on keeping daily operations on-target.
Sellers often have good “people skills” and may have visions of being able to woo a buyer with their presentation of their business. That’s rare, but even if it were to happen, many sellers fail to realize, if they were handling the sale on their own, just how many buyers they would have to woo to get to one that actually buys. That is a critical role a business intermediary plays, which again frees the seller to focus on maintaining status quo of the business while the sales process is ongoing.
An adjunct to maintaining status quo is the critical task of maintaining confidentiality throughout the process. Until a stock or asset purchase-and-sale agreement has been signed, most sellers want to avoid disturbing or jeopardizing the business’s normal interaction with customers and employees.
Alerting the competition is another pitfall of improper confidentiality. An experienced M&A professional will protect confidentiality when selling a business in three ways.
In marketing the business, the M&A professional will use non-specific descriptions.
They will require signed confidentiality agreements.
They will perform a careful screening of all prospective buyers.
In order to keep the sale of your business on solid ground, it is important that you effectively apply your strengths as a business owner in ways that simultaneously strengthen your company and do not weaken the sale.
Using the key business selling points discussed above, along with the expertise of an experienced M&A professional with a strong track record, will keep the process of selling your business on track and progressing toward a successful closing.
*This article originally appeared in IBG’s blog.
If you would like to discuss your exit strategy, we are happy to schedule a call with you to discuss. Our global team is comprised of senior M&A professionals across the US, Europe and Asia-Pacific.
John Johnson is a Principal at Eaton Square. He serves M&A clients by marshaling strong community, regional and national relationships combined with a rich professional background in business sales and purchases. John and his Oklahoma-based firm have managed projects for the owners of hundreds of private family and entrepreneurial businesses.