The #1 reason to do something yourself is that the decision has the potential to save money. This analysis is correct if you have substantially similar knowledge, experience, and ability to the hired party. A good example of this scenario is cleaning your home. Most people have the ability to clean their home to an equal level of quality as a professional in that industry if they have the time and appropriate tools and products. The most common reasons to delegate a project to an outside party are a lack of knowledge, experience, professional skills, necessary tools, or time. The decision by an entrepreneur to delegate the sale of their privately held company or family business to a professional intermediary is traditionally motivated by a combination of these reasons.
The following are nine reasons why it is generally prudent to hire an experienced, knowledgeable business broker to sell your company:
- Business Valuation – The successful sale of any product starts with knowledge of its market value. The value of a used vehicle can be accurately assessed by researching the sale price of cars of the same year, make, & model in similar condition with approximately equivalent mileage. This assessment is not possible for a business because IF a similar business can be found for sale or that has sold recently (A difficult task), it is impossible to find one in the same city with the same annual revenues & profit, similar management roles and responsibilities by ownership, the same location in terms of physical & demographic attributes and rent, identical staff in terms of compensation, experience, & skills, and with the same customer base. The valuation of a business is a sophisticated, nuanced, subjective science that requires years of knowledge, experience, and a strong accounting, finance, and investment analysis professional skill set to do correctly.
Business brokers who are active in a marketplace who have recently completed similar business sale projects are frequently superior at assessing business values to accountants and business appraisers because they possess relevant market knowledge to incorporate into their valuation. Three things can result when a business is valued and placed on the market for sale. Two of the three are bad. The business can be overvalued, sit on the market with limited or no buyer activity, and not sell. The business can be undervalued and sell for below its market value costing the owner money, or it can be priced correctly and sell at a “fair market to premium value”. The most common way to achieve the third outcome is to employ a professional to sell your business.
- Confidentiality – It is not in the best interest of a business for the company’s employees, customers, landlord, and/or suppliers to learn the business is for sale. The information a business is being marketed for sale can negatively impact revenues, profits, market share, employee retention, and important business relationships. The best way to protect the confidential information a business is being marketed for sale is to have established processes and legal documents for employment to ensure the information is held in strict confidence by potential buyers. Professional intermediaries have these tools. A Do-It-Yourself (DIY) business seller will not have time tested processes and non-disclosure agreements available for use during the sale process.
- Buyer Qualification – A company advertised for sale has the potential to attract a spectrum of potential buyer inquiries. A percentage of the inquiries will be from parties seeking information (including competitors) who have no intent to purchase the business. A percentage will be buyers who would like to purchase the business, but do not have the financial capability to complete the transaction. A percentage will be buyers who are willing to acquire the business if they will receive a favorable price & terms from the seller and the final group will be financially qualified buyers with sincere intent to negotiate in “good faith” to complete a transaction. A DIY business seller has the ability to market and engage with all potential buyers, however without appropriate processes, experience, and professional skills there is a strong probability they will spend a significant amount of time working with “less than ideal” parties and potentially end up in a negotiation that results in the buyer completing a transaction on terms that favor their side of the table. An experienced, knowledgeable business broker will filter buyers so only parties with the potential to complete a transaction at a satisfactory price and terms will utilize the seller’s valuable time.
- Marketing – A sales presentation that puts a business in the best possible light highlighting its attributes requires knowledge, experience, and a strong professional skill set. This presentation needs to be articulate and persuasive in writing, on the telephone, and when delivered in person. Only one opportunity exists to make a first impression on a potential buyer for the business, if it is not skillfully performed, a buyer or transaction value can be lost.
- Buyer Location – Business buyers can be local, regional, national, or international in nature. They can be individuals, search funds, private equity firms, privately held and publicly traded companies, and non-profit organizations. It is in a business seller’s best interest to create a robust marketplace where parties compete to purchase a company. Knowledge and ability on how to create a business sale marketplace is commonly possessed by business brokerage professionals.
- Negotiation – A business sale transaction is a sophisticated, nuanced negotiation. The obvious negotiation is related to price, but additional negotiations occur between the parties related to how the sale price is delivered, the tax allocation of the sale price, the non-competition agreement executed by the seller post sale, and the time period provided by the seller post transaction for transition training/consulting. Each of these negotiations has a spectrum of possible outcomes that can favor the seller, buyer, or be “middle ground” outcomes achieved in “good faith” negotiations by parties desiring a “win-win” transaction. It is always prudent to enter into negotiations with the most highly skilled professional possible representing your interests. Business sale negotiations have the potential to be a situation where you “do not know what you do not know” and don’t have the ability to successfully complete the transaction on the “best possible” terms for a novice or “Do-It-Yourself” business sale negotiator. Can you afford for this to be the case in the sale of one of your most valuable assets? Hiring a professional business sale intermediary can mitigate the risk of negotiations going sideways or resulting in a less than ideal outcome.
- Deal Facilitation – Agreement on the business terms of a transaction between a potential buyer and seller is a strong step in the direction of a completed transaction. However, agreement on a letter of intent (LOI) is not the same as completion of a transaction. The deal will still need to navigate through accountants completing due diligence, attorneys fleshing out the skeleton business terms of the deal and addressing post transaction liability issues, feasibility and/or environmental assessments, and securing financing or investor backing for the acquisition. Many a business sale has been lost by parties thinking a ball rolling down a hill will end up in the desired location. Management and control of the business sale process by an experienced, knowledgeable professional intermediary significantly enhances the probability of the transaction being completed as contemplated by the buyer & seller.
- Professional Collaboration – Many parties involved in business purchase & sale transactions have not assembled the appropriate professional team to protect their interests and address all the requirements to complete the deal. Business brokers can be a great source for an attorney, accountant, and other professional referrals needed by parties in a transaction.
- Financing – A significant majority of business purchase transactions involve the buyer financing part of the acquisition. A frequent valuable role of a business broker in a transaction is sourcing the funds necessary to facilitate the completion of the deal. Financing needs can be addressed by banks with national footprints, regional community banks, state-chartered banks, and credit unions. They can be addressed by banks that are generalists or who focus in specific industries. They can involve government guarantees supporting the loans or be conventional loans based on the past relationships and the signature power of the buyer. Rejection of a loan by one bank and funding by another is common in the business brokerage world as underwriting and credit policies can vary significantly between lending institutions. Knowledge of where the money is and who is lending on transactions in a specific industry can be the difference between a completed and failed deal. It also can be the difference between an “all cash” deal and one where seller financing is required. This knowledge is commonly possessed by mergers & acquisition professionals.
Knowledge, experience, professional skills, time management, and the delegation of responsibilities are all good reasons for a business owner to seek professional representation in the sale of their business. If a business sale and engagement of a business broker in the Pacific Northwest is desired in 2020, the professionals at IBA would welcome the opportunity to interview for a position on your transaction team. IBA’s professional intermediary team has sold more businesses than any other business brokerage in Washington, Oregon, & Alaska. 100% of our fees are payable on performance at completion of the transaction.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.