There are four different ways that business owners typically use to Exit their businesses:
- Close the Business
- Accident, Illness, or Death
- Sale of the Business
The obvious choice for many is Sale of the Business. Statistics show that approximately one out of every five businesses in the U.S. change ownership every year. Selling a business requires dedicated professional attention. Marketing and facilitating a business transfer is a full-time job. The goal of the seller is to maximize the after-tax profit on the sale of the business while maintaining strict confidentiality. The following steps must be taken in order to achieve the seller’s goals:
PRICING AND VALUATION. Sellers want the best possible price for their business. To determine the best price, a professional broker will use the industry-tested valuation techniques, including ratios based on sales of similar businesses and historical data of the types of business for sales. A critical factor in pricing a business is the terms offered, and the type of deal structure. The broker will work with the seller’s financial advisors to achieve the highest amount of “net proceeds” after the sale. While the selling price is important, the amount that the seller “keeps at the end of the day” is what is really important.
PREPARING THE BUSINESS FOR SALE. To make an informed decision, a buyer will require information on the business activity, history, customers, sales and earnings, marketing strategy, employees, assets included, facilities, location and the reason for sale. A complete Offering Memorandum will enable a buyer to make an informed decision and obtain the required financing to proceed with the deal. Generally, buyers are more educated on the process of buying a business than sellers are in the process of selling.
MARKETING AND ADVERTISING. Designing a marketing plan specifically targeted to the types of buyers that would be interested in the business is a key factor. Business brokers use databases of buyer’s prospects, professional associations, and investment groups. Target marketing through trade publications, direct mail and Internet sites specifically for business transactions may be used to reach buyers. Advertising in newspapers both local and national, as well as in industry trade journals will produce qualified buyer prospects.
QUALIFYING BUYERS. The business broker will focus on those prospects who are financially qualified and who are genuinely interested and have the skills needed to run this type of business. Finding a “real, qualified buyer” is a skill that is developed by years of experience in doing business transactions.
PRESENTING THE BUSINESS. The professional business broker is experienced in handling negotiations. The broker also offers the seller convenience of continuing to manage the business while the selling process is under way. Information is disclosed to buyers in stages, as needed, while the deal progresses through the due diligence process.
MAINTAINING PRIVACY AND CONFIDENTIALITY. Business owners are extremely concerned about confidentiality. A professional broker is skilled at protecting the confidentiality from the employees, suppliers, creditors and customers of the business.
NEGOTIATING THE BUSINES SALE TRANSACTION. The business broker will be a vital advisor during the sale transaction. Knowledgeable about negotiating price, terms and other key aspects of the sale, the broker will guide the seller each step of the way. Proper deal structure will greatly affect the net amount that the seller will end up keeping after selling the business. The Broker will help coordinate the Legal, Accounting, and Financial Professionals that are required to complete the transaction.