Why You Should Use a Business Broker

Posted by on Sep 18, 2015 in Uncategorized | Comments Off on Why You Should Use a Business Broker

Why You Should Use a Business Broker

Any business owner who has sold a business on his or her own will tell you it’s a long, tedious and stressful process. It consumes time and distracts you from the day to day operation of the business. When your focus should be on maintaining or increasing the value of your business, all of your time and energy is directed to the sale process.

That’s where an experienced business broker can pay huge dividends. An experience business broker can help guide you through the complicated process of selling your business. There are many areas where the business broker expertise pays off:

  • Confidentiality. If you as an owner attempting to sell your own business, that process alone reveals that the business is up for sale. Employees, customers, suppliers and bankers all get nervous and competitors look to make a kill. A business broker will protect the identity of the company and contact only owner approved buyers through a blind profile – a document describing the company without revealing its identity.
  • Business Continuity. Selling a business is time-consuming for an owner who already is probably wearing many hats for the company. By taking on the additional load of selling the business, essential functions will get less attention and possibly damage to the business. The owner can maintain a focus on running the business when a broker is working on the sale.
  • Reaching potential buyers. Business brokers have the tools and resources to reach the largest possible base of buyers. They then screen these potential buyers for revenue that would support the potential acquisition.
  • Marketing. A business broker can help present your company in the best light to maximize the sale price. He or she has an understanding of the key values that buyers are looking for and can assist in identifying changes that can lead to a better selling price.
  • Valuing your Business. Putting a value on a business is far more difficult and complex than valuing a house. Every business is different, with hundreds of variables that have an impact on the value. Business brokers have access to business transaction databases that can be used as guidelines or reference points. But the best way for a business owner to truly feel comfortable that he got the best deal is to have several financially viable parties bidding for his business, which is much more likely using the resources of a professional business broker.
  • Balance of Experience. Most corporate buyers have acquired multiple businesses while sellers usually have only one sale. An experience business broker can level the playing field for a business owner making his one and only business sale.
  • Closing a Deal. Since the business broker’s sole function is to sell the business, there’s a much better chance that a deal will be closed in less time. The faster the sale, the lower the risk of employee problems, customer defection and predatory competition.

Utilizing the services of an experienced, professional business broker allows the owner to focus on running the business reducing the risk of business erosion during the sale process. A sale facilitated by a business broker helps maximize sales proceeds by involving a large universe of buyers in a confidential, competitive bidding process.

The typical business owner will only sell a business once. Understanding the complex process involved will help produce the best results. But don’t fall prey to the myths that can derail or seriously affect a potential sale.

Myth #1 – I Can Sell It Myself

Many owners believe they’re qualified to sell their business without professional assistance. Many owners are entrepreneurs and the key salesperson for the company. But selling a business is not like selling a product or service. If you’re looking to sell on your own, confidentiality is lost. If word of a potential sale gets out, there are definite risks of losing clients, employees and favorable credit terms. Do you really have the time to run your business and compile marketing materials, advertise, screen buyers, give tours and facilitate due diligence? When you’re looking to sell you want to put even greater emphasis on running your business, boosting your sales and not taking on new challenges.

Myth #2 – I’ll Sell When I’m Ready

Certainly, an owner wants to be sure he or she is mentally and emotionally prepared to sell. But personal readiness is just one factor. Economic factors can have a significant impact on the sale of a business. Sale prices can be affected by industry consolidation, interest rates, unemployment and many other economic measures. Talk with a professional and aim to sell when your personal goals and market conditions align.

Myth #3 – I Know What it is Worth

Some owners will base the company value on what they need for retirement. Others will tell you they want $100,000/year for “sweat equity.” Still others utilize industry multiples. A third party valuation is a good idea for anyone seriously considering the sale of their business. An outside valuation will include a thorough analysis of the business and the market it operates in. This will provide a solid understanding of the company’s growth potential, not some vague industry average.

Myth #4 – It’s Like Selling a House

Preparing to sell your house may take a few weeks, but once you get a satisfactory offer, you sign on the dotted line, turn over the keys and move on. Selling a company is much more complex. A successful business sale usually requires a great deal of pre-planning, at least a year and maybe as long as three years to drive sales, develop key staff, document the operations and control expenses. The average house will sell in less than four months, while the average business sale is nine months to a year.

Even after the business is sold, the seller can be expected to put in at least a few months, and possibly years of transition time, helping to make the new owner a success.

Sound sale strategies will bring you the optimum price the market will bear. Go to market with realistic expectations by getting a professional valuation and using a professional business broker or intermediary.

If you’re looking to sell a business, it’s critical to look at the value of the business. But a typical business really has two values. The “academic” value is the one determined by a professional business valuation. The other is the “true market” value. The academic value is arrived at with a formula based on the firms’ hard assets, cash flow, industry averages and multiples. The fair market value also takes those items into consideration, but then considers what buyers are really willing to pay.

For many small and mid-sized businesses hard assets like equipment, vehicles, land, buildings, and inventory may be limited. For some small businesses there may be no hard assets at all. Instead, their value is based on intangibles like employees, business processes, customer lists, location and business relationships.

To maximize the fair market value of your business, it’s vital that you capitalize on those intangible assets.

  • Develop key employees. Buyers generally aren’t interested in paying a premium if the business relies on you for its success. Remember to delegate responsibility to key employees and involve your key staff members in the decision making process. Demonstrating that your company’s success is reliant on your capable, well-trained employees – not just you – will pay off at the time of sale.
  • Document what you do. Be sure that job descriptions, operation processes, and strategic plans are documented. Documented records and plans give a buyer greater comfort that he or she will be able to emulate your successful growth and will help your buyer obtain financing. Also, be sure to keep business records like sales and expense reports, internal profit and loss statements/balance sheet, and tax returns clean and well-organized.
  • Build relationships. Name recognition, customer awareness and your reputation are all part of your business value. Even if your company doesn’t have many hard assets, your relationships are key. Consider diversifying both supplier and customer accounts.
  • Improve cash flows. A potential buyer wants to see the “true cash flow.” And, of course, in the business world cash is king. Be sure you are driving all income to the bottom line.
  • Review your assets. Sell off or dispose of unproductive assets or unsalable inventory. Remove or buy off any assets that are primarily for your personal use.
  • Find and build your niche. You don’t have to be everything to everyone. Buyers will pay a premium for a niche that has barriers to competitive entry.
  • Remodel, clean, and organize. What’s the first thing anyone does when they put their home on the market? They spruce things up and make sure everything is in its right place. Yet, in business, that’s rarely considered. A well-maintained facility will get the best price. Even businesses that lease space can benefit from a thorough cleaning and organization to convey a feeling of quality and efficiency.

Keep these important intangible assets in mind if you’re looking to sell your business. They convey a value that financial statements alone do not. If you are looking to sell, make a plan. Start working on the intangibles well in advance of putting your business on the market. For many business owners, they reach a point where they burn out and psychologically retire early, before a sale is made. It’s important to work to keep your focus right until the sale is complete. Finally, when the time to put your business on the market arrives, consider lining up key specialists who will help you make the most of the sale – an attorney, an accountant, and a business intermediary to name a few. Remember, you only have one chance to sell your business, so you want to do it right.

Rebecca Walker-Jones is a licensed Real Estate Broker in Alabama and Georgia and a member of The International Business Brokers Association. Based in Auburn, Alabama she facilitates the sales of privately held businesses and she can be reached on (334) 787 1716.

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