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For many owners, selling their business is a new experience, and there is always the fear of the unknown. Selling a business is not only a major economic decision but also can be an emotional one. After all, many business owners have spent many years, and a lot of hard work building the business. When the decision to sell is made, there will inevitably be accompanying concerns. However, when faced head-on these concerns can usually be addressed and resolved. Here are some of the major concerns and ideas on how to deal with them.
Getting the Highest Possible Price
Every seller wants to get the highest possible price for their business – that’s a given. Here is an old, but very accurate definition:
The Asking Price is what the seller wants.
The Selling Price is what the seller gets.
The Fair Market Value is the highest price the buyer is willing to pay and the lowest price the seller is willing to accept.
Today’s buyers are more educated, more sophisticated, and more demanding than ever before. They seem to be searching for a “sure thing” – yet, many are afraid to make the leap-of-faith necessary to make the final plunge. Buyers are also more numbers conscious than in prior years. Somehow they think they can buy a business and continue with business as usual.
Sellers, on the other hand, must understand that the buyer may buy with an eye to the future, but is only willing to pay for the past performance of the business. The buyers believe that the future of a business is up to them and they should reap the benefits of their efforts. The value or price, however, in their minds, is based on what the seller has done with it.
In order to obtain the highest possible price, the seller should make sure that the financial records are crystal clear. Any issues, whether financial, operational, legal, or environmental, should be addressed and resolved prior to putting the business on the market. Hidden issues have sabotaged more sales than anything else.
This may seem a contradiction, but the seller must go to market initially with a fair price. Too many times, a seller’s first inclination is to start with a very high – and – unreasonable price. They may feel that the business is really worth what they are asking and may be unwilling to accept the fact that the price is unreasonable. The thinking is that an interested buyer can always make an offer. Interested buyers will feel that the price is so high that a fair offer would not even be considered. A professional business broker can advise buyers on what is reasonable and what is not.
Another important factor relating to the asking price is the amount of cash involved in the sale. There is an old saying that the higher the full-price, the lower the down payment – and vice-versa. The sale of almost any business involves some seller financing. The smaller the down payment, the higher likelihood of a quick sale. No seller wants to take back his or her business because the buyer wasn’t successful. On the other hand, a buyer wants to make sure that the business will not only pay for itself, but also provide sufficient income for his or her family’s needs.
What it all boils down to is that the seller wants the buyer to be successful and the buyer wants to buy a successful business. With the amount of capital required in today’s market to buy a business, sellers should feel optimistic that they are dealing with successful buyers.
Confidentiality is always a major concern. Sellers feel that maintaining confidentiality is important in safeguarding the current business. They don’t want the word to leak out to customers, suppliers, competitors – and especially the employees. This is an area where a business broker professional can especially help. They use non-specific descriptions, screen and qualify buyers and require buyers to sign confidentiality agreements before showing businesses or providing specific information.
However, even under the best of circumstances, rumors can fly. There are basically two ways sellers can muffle the business-for-sale problem. The first is to explain that over the years there have been people who have inquired about whether the business might be for sale. These inquiries are unavoidable and they do happen.
The other way is to handle the matter directly and to explain that you have been considering retiring and now may be the right time. The employees, especially the key ones, should be told prior to putting the business on the market so they don’t hear the rumors second-hand. They should be told that they are very important to the business’s success and that a new owner would most likely be happy to retain them. When the sale is complete, they can be offered a bonus for helping in the process. Sellers should do whatever it takes to keep the employees from deserting the ship and on deck to maintain business as usual. Once employees have been dealt with openly and fairly, they will understand that discretion will help protect their future.
The Future of the Business
Sellers may feel that they have built the platform for the future growth of the business. It is only natural for them to want to share in any extraordinary profits in what they feel they have helped create. Sometimes, if the price is low enough and it allows a buyer to purchase the business, he or she may be willing to provide some type of earn-out or royalty based on any substantial increase in sales. The professional business broker can offer advice on how to make this work for everyone. However, everyone has to agree that no one can predict the future. As mentioned earlier, the buyer is hoping to buy the future, but is not willing to pay for it.
Anyone who is considering selling – or – buying a business wants to know the advantages of using the services of a business broker. They also want to know what to expect from using their services.
Let’s look at these questions from the seller side first. In most cases, the business broker is listing the business for sale. In most cases the business broker is representing the seller and is duty-bound to represent the seller honestly and fairly. A business broker is also charged with trying to get the highest possible price – and the best deal – for the seller. However, sellers must understand that, no matter how hard the business broker tries, it is the marketplace that ultimately determines the price and terms – not the business broker or the seller.
The business broker will keep the seller informed, on a regular basis, of the status of the listing and will do everything possible to maintain the confidentiality concerning the sale of the business. However, selling a business is a two-way street and requires cooperation on both sides – seller and business broker. The broker needs to be kept aware of current information regarding the business, such as sales trends, major equipment purchases, inventory fluctuations and the like. The broker and the seller must work together; they are on the same side, and they should work as a team.
In some states, business brokers act as transaction brokers. They do not represent anyone; instead, they work for the transaction – their job is to make the sale work and go together. Despite the fact that they may not represent either buyer or seller, they still must treat both sides honestly and fairly.
Although in most states, the business broker does represent the seller, he or she must still deal honestly and fairly with the buyer. The advantages of a buyer in working with a business broker are the many opportunities that can be presented to the buyer. Many buyers may think they want a certain kind of business, but, in fairness, they have no idea of the various businesses that may be available.
No one likes to waste their time, and business brokers can show buyers businesses that fit their pocketbook and still can provide the necessary income to provide for their families. Buyers want candor in the presentation of the business. The business broker is an intermediary – he or she can resolve issues and misunderstandings easily and quickly.
Professional business brokers bring value to the process of buying and selling businesses. They understand the issues and the details involved in the business transaction. They have the knowledge and experience to bring the sale to a successful close. If the buyer and seller are honest with the business broker – a win-win situation will result. In return, business brokers need a seller who is really a seller and a buyer who is really a buyer. Buyers and sellers should have high expectations about what the business broker can offer. At the same time, the business broker has the right to have the same expectations from them.