If you’re a business owner who’s been thinking about selling your business for a long time, getting an offer from someone who wants to buy your business is a euphoric moment. However, it’s important you don’t get caught up in all the excitement, and think clearly and strategically about the upcoming sales process so you can get the best possible outcome. Here are some steps you should take when someone makes an offer for your business.
Whether you’re thinking of retiring, moving on to a new challenge or anything in between, finding a buyer for your business is an important and exciting milestone on the way to living your dreams. While an initial offer is a perfect start, there are still a lot of moves you need to make between then and the moment the final purchase agreement is reached, so keep your foot on the break. Through avoiding some of the most common mistakes business owners make during their sales process, you’ll retain your advantage during negotiations, ultimately increasing the value of your business.
Even if you’ve got an offer, before you can even think about selling, it’s paramount to know that your business is in the best condition to get the highest price possible. Once you’ve done that, and only then, you can confidently ready your business for the sale.
Don’t Get Overwhelmed In The Euphoria And Rush To A Sale
It’s no secret that competition will more than likely increase the price you can get for your business, so that’s why your prospective buyers will want to proceed with the sale as quickly as possible to avoid other potential buyers circling. They’ll do this by asking you to sign a non-binding Letter Of Intent (LOI), which allows the buyer two months of unbridled access to your books in which time they can perform their due diligence. During this time the Letter Of Intent prevents you from negotiating with anyone else who may be interested. The longer this period drags on, the higher chance interest from other buyers will wane or drop off completely, leaving room for the initial buyer to lower their offer having eliminated the competition. Be wary of entering into an exclusive agreement too early in negotiations and proceed only with the advice of a key advisor. You’ll eventually have to sign a Letter of Intent, but do so only after a competitive bidding process which will ensure you’re getting the highest possible offer for your company.
Hire An Expert, It’ll Cost You Not To!
To many business owners it may seem counterproductive hiring the services of a business sales professional to help with the sale process. But while it seems like you’re just handing part of the proceeds from the business you put your life into to someone who shows up at the last minute, that someone can help you get a much higher price. Most people wouldn’t think of selling their house without the assistance of a real estate agent, so why would selling your business be any different? Business owners could very well feel that way as to them nobody knows their own business better than they do, and true as that may be, the benefits of bringing a business sales professional on board will vastly outweigh the additional costs. Business sales professionals are paid through a non-refundable ‘work fee’ and a ‘success fee’ of around 5-10% of the final sale proceeds depending on the size of their business, with the work fee generally being deducted from the success fee. So why is it justifiable to hand over a sizeable percentage of your company’s value to someone who wasn’t there to build it? Here’s why they’re worth the money:
A business sales professional will set up competition that will ultimately draw a higher price for your business. Even if you’ve received one offer from a single buyer, a business sales professional can tap into their network of investors looking to buy businesses to see if any are interested. At the very least just the threat of being outbid should get your buyers to consider upping their offer, and in many cases, through added competition, hundreds of thousands of dollars can be added to the sale price.
The business sales professional will be an important asset in the negotiation process. Most buyers will bring a clinical, often hard-headed approach to the negotiation table and it’s easy for a business owner to be overrun by emotions when faced with such indifference to the sentimental value of their business, among other things. This is where business sales professionals come in and act as the counter-negotiator. They’ve been involved in countless sales and so have seen it all before and know how to deal with every tricky negotiation tactic that might get thrown your way. Level-headedness at the negotiation table is important as after the sale you’ll likely have to remain on good terms with the buyer following the sale to aid the transition of ownership.
Depending on the size of your business, you will either need to hire a business broker (for a smaller business) or a Merger and Acquisition consultant (for a larger business). While there is a cost associated, it should really be seen as an investment as by getting you a much better price for will business, it will pay for itself many times over.
Playing Hard To Get Can See That Image Become A Reality, So It’s Important To Start On Good Terms
Given it’s likely that at some point during the negotiation process your buyer either makes an offer or presents a condition you deem unreasonable, it can be tempting to become dismissive, but this is a big mistake. Business buyers will have other opportunities available to them and being arrogant and indifferent towards them may see them consider their options elsewhere.
There’s nothing wrong with arranging an informal meeting over lunch or a drink with a potential buyer. Doing so is, at the very least, a great way to find out more about them and their company. When the topic of conversation ultimately steers towards business, keep the intensity high while subtly steering the conversation back to them. Should the buyer ask you direct questions such as “Would you consider selling your business?” or “How much do you want for your company?” Thank them for showing interest and assure them that any offer they should make will be seriously considered by you and your partners. Don’t have partners? Keep it to yourself, the buyer doesn’t have to know that, and suggesting the need to consult your ‘partners’ will buy you some time to properly prepare for a sale process and engage a business sales professional.
If You Can, Avoid Letting Your Employees Know Until It’s Confirmed They’ll Have A New Boss!
Would you tell your kids the family is going to Disney World if there was only a one in three chance you were actually going? Should something go wrong you’ll never hear the end of it! It’s the same deal when telling your employees about a prospective sale, and it risks the business drowning in a sea of speculation and spiralling out of control. It’s OK, and sometimes necessary, to involve a few senior employees, but not everyone. Once the time is right, which shouldn’t be before the deal is certain, then you can involve your employees in the sale.
Receiving an offer from someone who is interested in buying your business is one of the most exciting times in the life and accomplishments of a business owner. If you go the right way about it, by systematically structuring your sales and negotiation processes, a casual inquiry could become a once in a lifetime payday.