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Business Broker Report 6: How Long Will It Take to Sell My Business?

Posted on Mon, Apr 29, 2013
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Business owners tend to be “type A” personalities. They make decisions and want to see them executed – not tomorrow, not next week or next month, but NOW.

When they finally decide that it’s time to go (and it usually takes some time to reach that decision) they’re the same way. They want the deal done yesterday. But selling a business takes time. It is a delicate and complicated process that needs to be guided by a hands-on, experienced professional. Your business likely represents the bulk of your estate and the monetary value of your life’s work. You can’t rush it. You need an experienced, professional Business Broker or Mergers and Acquisitions Advisor to help guide you through potential pitfalls, avoid costly mistakes and maximize the value of your business. There aren’t second chances here. Click here to learn more about the process.

It normally takes between six months to one year to sell a business. 

The good news is that during that time, you’ll be running your business and making money. The bad news is that you will have to be patient as the process moves forward to closing.

Here’s a typical timeline of the process of selling a business:

Month 1.  Your Business Broker or M&A Advisor will give you a list of items he needs from you to write the Confidential Business Review (CBR) – the prospectus that tells prospective buyers about your business, shows your business in its best light and is calculated to help achieve the highest possible market price for your company. You will provide the requested items and your Advisor will draft the CBR for your approval. He will make any necessary changes and then finalize the document.

Months 1-2.  Your Broker or Advisor will accumulate a list of potential buyers. Buyers might be private equity funds, hi-net worth entrepreneurial individuals or other companies. He will vet the potential buyers and have them sign Non-Disclosure Agreements (NDAs). NDAs require buyers to keep all of your information confidential, including the fact that you want to sell. He will provide the CBR to potential buyers, answer their questions and follow up with you on requests for additional information.

Months 3-6. Your Broker or Advisor will develop a “pipeline” of serious prospects. These prospects will want to meet you. Your Advisor will arrange in-person or virtual meetings. If the meeting is in-person, it should be held off-site or after hours to maintain confidentiality. Some buyers will move forward; others will drop out. Your Broker will facilitate responses to requests for additional information prospects who remain interested and arrange additional meetings.

Months 4-7. Your Broker or Advisor will solicit offers from interested buyers and help you negotiate terms. Offers will typically be in the form of a Letter of Intent (LOI) – a short, non-binding document outlining the basic terms of the prospective deal. There may be multiple LOIs before you and your Advisor are satisfied that a proposed deal is right for you.

Months 5-12. Once an LOI is accepted and fully signed, it typically takes between three and six months to go to closing. During this time several things need to happen. The buyer will retain legal counsel and draft a Purchase Agreement – the formal document that defines the terms of the deal. Your lawyer will review the document and make changes that help to better protect your interests. There is normally a fair amount of back and forth negotiation before the Agreement is acceptable to both parties. There may other documents to draft and negotiate as well – Covenants Not to Compete, post-closing Employment or Consulting Agreements, Security Agreements, etc. During the early part of this period, the buyer will conduct his due diligence – his examination of the company in more detail to ensure that everything is as it is supposed to be. He may retain accountants and attorneys to help with this task. He will, if necessary, also finalize his funding. When due diligence is completed, all the closing documents are agreed to, funding is finalized and any necessary approvals are received, it is time to go to closing.

Although we have sold businesses as quickly as 90 days, we find that most businesses take 6-12 months to go to closing. Click on the button below and we’ll map out the steps you need to achieve the highest possible market price for your business. There’s never an up-front cost or obligation, and all communications will be held in the strictest confidence.

Sell Your Business With Confidence

 

Tags: business brokers, M&A, Mergers and Acquisitions, selling your business

Business Broker Report 5: Confidentiality – How Important Is It ?

Posted on Thu, Apr 18, 2013

Confidentiality – How Important Is It When You Sell Your Business?As a business owner, you are likely quite loyal to your employees. They’ve stuck with you through the tough times and helped you build your company into what it is today. You wouldn’t be where you are without them. So when it’s time to sell your business, it’s not surprising that many owners are conflicted – they feel like they are betraying their devoted employees loyalty and trust.

Some owners feel guilty about keeping the sale a secret from a trusted manager or employee, especially those individuals with whom they have close personal or working relationships. But when employees learn their company is for sale, they get nervous. It’s a natural human reaction, a normal response to an event they believe may threaten their well-being. An employee will worry the new owner won’t keep him on, so he may start looking for another job – and perhaps share his fears with other employees. This is the type of news that spreads like wildfire, often distorting or losing the truth in the process.

It’s best for everyone if news of the sale is not revealed until after the closing. This way, you control how and when the details are communicated. After the closing, your employees will have the opportunity to meet with the new management, who will assure them they are valued members of the team – which is true – and that their jobs are secure. 

And if you tell even one employee, you’ve told them all. Even a trusted manager is likely to confide in his co-workers. And then word could get out on the street. Your vendors might put you on COD, your competitors will tell your clients you’re going out of business and your banker will start calling you. Nothing good can happen from breaching confidentiality.

But how do you maintain confidentiality during the sale process? Here are some tips for keeping your deal confidential:

  1. Create a buffer zone. If buyers are communicating directly with you, you’re fielding their calls and emails at work. This may lead to premature disclosure of the sale. Use a Business Broker or M&A Advisor to provide a buffer zone between your company and prospective buyers. A Broker will protect the confidentiality of the sale by shielding you from direct contact with potential buyers. All buyer communications will go through the Broker. The Broker will only contact you using an agreed-upon confidential email or mobile number.

  2. Have all buyers sign non-disclosure agreements. Non-disclosure agreements prohibit the buyer from sharing confidential information, including the fact that you are considering selling, from anyone except his lawyers and accountants involved in the deal. They also prohibit the buyer from speaking with your employees, suppliers, vendors, etc. without your prior written approval.

  3. Conduct all meetings off-site or after hours. Unless its normal for you to have meetings with people your employees don’t know, avoid buyer meetings at your business site during business hours. Schedule meetings at your merger and acquisitions advisors office or at another convenient location such as a coffee shop or hotel lobby. If it becomes important for the buyer to see your operation, schedule the meeting in the evening or on the weekend when your employees are gone.

  4. Don’t Rush To Sell To Your Competitors. When an owner tells us that he believes that a competitor would be the natural acquirer of his business, we strongly urge caution. Buyers from your own industry are not the buyers who are most likely to pay the highest price. We consistently find that equity funds and outside investors accept higher valuations than industry insiders. While your competition would love to acquire your clients and other assets, they generally don’t like to pay for good will – after all, they already know how to provide the goods or services you provide. And selling outside your industry makes it simpler to maintain confidentiality, while even an unintentional slip or breach of confidentiality by a buyer in your industry could cause problems.  That’s not to say that selling to a competitor is never the right move - sometimes it is - but when it is, it needs to be handled with an abundance of caution.

Click here to learn more about maintaining confidentiality during the sales process or click on the button below or call us at 240 290-5000 and we’ll map out the steps you need to achieve the highest possible market price for your business. There’s never an up-front cost or obligation, and all communications will be held in the strictest confidence.

Sell Your Business With Confidence

Tags: business brokers, M&A, Mergers and Acquisitions, selling your business

Business Broker Report 4: Selling Your Business? Think Like a Buyer!

Posted on Fri, Apr 05, 2013

Selling Your BusinessYou’ve decided that the time has come to exit your company. You’ve worked hard, grown a great business, provided a stable living for your employees. But enough is enough – it’s time to go. You know what you’ve built and know what you want. You’re ready to sell. But just like in your business, it takes two parties to make a sale – a willing seller and a willing buyer.

Experienced Business Brokers and M&A Advisors agree - in order to position your company to achieve the best results when you sell, you need to think like a buyer.

Why do buyers buy businesses? To generate revenues? To own plant and equipment? To have employees? The answer is “no” to all of the above.

Buyers buy businesses in order to make money. Everything else is just a means to that end. Whether the buyer is an equity fund, a private individual or another company in your industry or a related industry, by purchasing your company the buyer is paying for the right to step into your shoes and make as much (and hopefully, more) money as you do.

While some buyers are looking for very specific types of companies to acquire, most are interested in broad categories like service, construction trades, tech or distribution, and then limit their search by geographic and size considerations.

Because buyers buy businesses to make money, it is not surprising to learn that businesses are valued largely by how much money they make.  Other factors that influence the valuation include the type of business, recent trends in the individual business and in its industry, assets and or liabilities included in or excluded from the transaction, geographic desirability and the existence of risk factors that might cause the goodwill of the company to evaporate after the sale.

Buyers avoid businesses where there is a substantial risk that the business’s goodwill - its ability to generate profits – might disappear. This could happen for one or more of the following reasons: unstable customer concentration (one or two big customers whose loss would cripple the business); lack of management structure (where the knowledge and relationships necessary to conduct the business reside exclusively with the owner); or external risk factors, such as increased competition, impending loss of a valuable location, technological obsolescence, etc.

Just like in your business, business sales - mergers and acquisitions - occur in a competitive market. Why should a buyer make a bid on your business as opposed to the many other businesses available for sale?

Here’s what you can do to make sure your business is attractive to buyers:

1. Keep your hand on the wheel. Once you commit to selling your business, it’s crucial that you continue to manage your business as if the sale were not on the horizon. It’s easy to take your hands off the wheel, your foot off the gas, and put your business on autopilot until closing. Big mistake. Nothing spooks a buyer more than getting a current sales report with lots of red numbers and downward arrows. You need to concentrate on maintaining and even growing your business, even as your Business Broker or M&A Advisor is guiding your sale forward to closing.

2. Avoid risky customer concentration. Some business owners make the mistake of structuring their company around a single client or customer who makes up 30-50% or more of overall revenue. Companies in this position face big obstacles when they want to sell. Unstable customer concentration presents a major risk to potential buyers. The buyers will want to deal with the risk of losing such a critical customer by either discounting the price or structuring the deal so that a portion of the purchase price is connected to future revenues from that customer. To protect and enhance the value of your business, it’s best to diversify your customer base so no one client accounts for more than 30% (and better yet, 20%) of total revenue.

3. Structure second-level management. Some business owners have trouble delegating – they keep their hands tight on the reins, make all the important decisions themselves and are the main point of contact with key customers.  That’s great as long as it works, but it’s not so great when it’s time to sell.  Buyers will avoid or discount companies where all decision making and key customer relationships reside with the owner. If you don’t already have one, it’s important to create a strong second level of management before you put your company on the market. Start delegating decision making to your next-in-command. Transition key customer relationships to trusted managers. It may be painful for some owners to give up some control, but it will yield strong dividends at the sales table.

To discuss your situation and to see if your business is positioned well for sale, click here or click on the button below and we’ll map out the steps you need to achieve the highest possible market price for your business. There’s never an up-front cost or obligation, and all communications will be held in the strictest confidence.

Sell Your Business With Confidence

Tags: business brokers, M&A, Mergers and Acquisitions, selling your business