Thinking Of Selling Your Business?
Not sure where to start?
A quick search in google will throw up all sorts of options for businesses that will sell (or promise to sell) your business. These are usually professional business brokers.
They specialise in helping business owners sell their businesses. The upside is they’ll handle a lot of the stuff that you might not be familiar with.
The downside? Well, they’ll want their cut out of any deal on the table & usually, you’ll be tied in contractually so you will only be able to sell the business through them for an agreed period of time (usually minimum 1 year).
So is there an alternative?
Can you sell your own business without a broker, privately?
Read on because here we explain exactly how you can sell your business fast & save yourself a load of cash at the same time.
I am a private investor looking to acquire businesses in multiple sectors. Contact me here If you are looking to sell your business privately.
Business Brokers – The Pitfalls
One catch that comes with hiring a broker is that even if you were to find a buyer yourself, you’d be legally obliged to let them manage the transaction, doing half their work but paying them full commission. Thus, if you have already negotiated a price with a buyer, it’s best to handle the rest of the deal yourself. You also don’t need a middleman when you’re selling to a relative or colleague as these are insiders with whom you have direct contact. In such cases, you only need your legal representative and accountant for financial guidance.
Brokers are also known to charge fairly substantial fees for their services, typically as high as 10%. If you’re looking to minimise the costs, this might be too much for you to swallow.
Additionally, some brokers may not be as focused on selling your business as you are whilst others may be too quick to compromise on a lower offer just to complete the transaction. If you want to sell your business privately and avoid all these drawbacks, there are a few things you can do to ensure you get the most value from the sale.
#1 – Conduct a Business Valuation
If you’re ready to sell your business, you want to know it’s estimated value. This helps you set your price. There are different methods of business valuation depending on the type of business, its size and cash flow. Some buyers take the recent year’s profits as the basis for valuing an SMB. Others dealing with larger businesses may want to calculate an average for the past two to three years in order to get a more realistic figure. At other times different factors come into play.
Below are some of the most common business valuation methods:
- Asset-based valuation: Usually employed when the current reported profits of a business don’t align with the amount of capital invested.
- Book value valuation: Based solely on the accounting records of the business. Its simple equation is: Assets – Liabilities = Owners Equity Value
- Discounted cash flow method: Usually preferred for being one of the more accurate methods. Larger, more stable companies are likely to use it.
- Others include ROI method, EBIT method, multiples valuation method and price to earnings method.
Your accountant will help you with business valuation.
#2 – List and Advertise
Once you’ve arrived at a determined sale price, it’s time to get the word in front of as many prospective buyers as possible. While a broker has access to many listing channels and potentially a pool of prospective buyers, the internet makes it almost as easy to market the business.
Using websites like BizBuySell, Rightbiz and BusinessesForSale, you can get your offer in front of many interested buyers. You can also create a full marketing campaign around selling the business. This will allow you to strategically take advantage of social media, search engine marketing and other effective inbound marketing techniques.
Before you advertise your business online, ensure you have all the necessary information on hand. This includes past performance, potential growth and business costs. Providing these details to interested buyers will help build their confidence in you.
#3 – Do your Due Diligence
Although difficult, finding a buyer is the easier task when compared to managing them. One important aspect to keep in mind is your time. You want to spend enough time with your potential buyers but you also don’t want to waste time on someone who would never buy from you. To qualify a buyer, brokers usually ask for personal financial statements. Similarly, you can save your time for qualified buyers by asking to see your prospects’ financial statements before you enter price negotiations. Additionally, ask them to sign a non-disclosure agreement.
You don’t have to disclose everything until the offer or offer acceptance. Make it known to the buyer that they will have time for due diligence when they can fact-check and back out if anything is amiss.
If you’re running your business as you try to sell it, give a proper time commitment to the sale but don’t abandon the business. Once you find a prospective buyer, keep the process moving towards the sale: Provide necessary information, negotiate and set up meetings.
#4 – Get Professional Legal & Financial Advice
Prospective buyers will be very interested in your financial records. For instance, they’ll want to know the business turnover and associated costs. They’ll also want to ascertain the financial documents you provide them. They’ll also be interested in knowing about your tax record. Your accountant can advise on the taxes and prepare all the necessary documents and organise them in a way that the buyer’s accountant will have an easy time verifying everything. They should also be able to offer some guidance when structuring the deal. Without forgetting you’ll need them for business valuation in the first place.
While you can find certain legal documents online and have your buyers sign to protect the sale and future relationship, it’s advisable to hire a legal professional to ensure that you are sufficiently protected from a legal perspective.
These two professional services are likely to eat into your profit. But this is money well spent because it reduces the risk of things going wrong which could cost you or even scupper the deal.. Unless of course this isn’t your first time and you’re sure of your own ability.
Conclusion
Granted, an expert business broker can manage the process much better than you can, especially if you’re new to it. However, the field is so unregulated means it’s hard to find an expert you can trust to get the best deal for your business and still leave you well compensated. You risk landing yourself a broker who promises more than they can deliver, charges you a lot of money and generally gets in the way of the deal.
Get in touch with me If you are looking to sell your business without a broker. We are a group of private investors looking to buy businesses in multiple sectors.
