Sell My Business
I want to sell my business. What I need to know?
When you start considering the process of selling a business there is a lot of information that you need and need to know before you can make your first decisions.
In asking some guiding questions I list some information that prospective sellers need to consider.
Who is the most likely buyer?
- You may have already identified your successor as a family member, employee or even customer or supplier.
- The nature of your businesses and market pressure may dictate a BEE option.
- You want to consider the open market to obtain the best possible offer from a large pool.
Irrespective of the buyer there are a number of common rules that apply and similar information is required and processes followed to take the process to conclusion.
I want to sell my business, but can my business be sold?
The self-proclaimed “largest” franchise business broking firm in South Africa sell less than 10% of the mandates they take from clients. One need to ask the question what happens to the rest?
It is extremely important for the seller to understand that HE is the seller and not the broker he appointed. It is the responsibility of the broker to discreetly expose the opportunity to as many willing and capable prospects possible and to guide the process through all the steps.
The seller will never be forced to accept offers extended by prospective buyers but should be realistic in their negotiations. The market will never pay a premium just because it is demanded.
Sellers should continuously follow his specialist broker advice on possible improvements in the business in order to make the offering more attractive. If your broker do not have constructive advice in this regard you may wish to consider an alternative.
What is the value of my business?
I deal with some of this in my articles but it is important for sellers to understand that there are many businesses in the market that yours will compete with. On the face of it there appears to be far more buyers than sellers but the reality is that less than 1 in a 100 persons who enquire and declare themselves interested are indeed willing, committed AND capable of buying a business.
Although expensive calculations can be acquired from accountants and valuation specialists the most important consideration remains the market. If someone is prepared to sell a similar business at a better price than the one you are offering.
Remember that a business can only be considered an asset if it can be sold. The asset value is established as the price that the business is eventually sold at. Many businesses can never be sold.
Read more about Business Valuation.
How do I find a reliable broker?
Make it your business to interview more than one. Some large firms may have a lot of experience but may also have totally unexperienced brokers representing them.
Most buyers and seller have never sold or acquired a business and is therefore going into uncharted territory. Your broker need to lead parties through the gate towards the successful transition and should therefore be experienced but also display leadership qualities without fear or favour of dominant and/or intimidating parties.
Perhaps most important is that a broker relate to your business. No broker has experience in every industry but there is an enormous difference between the sale of a restaurant and a large manufacturing or engineering concern when it comes to managing the transition of work in progress!
Understanding YOUR industry and activity largely improves the chances of the broker of representing your interest when engaging with prospective buyers.
As the process of broking a business involves marketing, legal, negotiation, technical, financial (amongst other) skills it may also be important to test and understand his grasp of these important functions.
What most sellers consider to be the most important is the cost. I would certainly understand this if the service level is standardised and the same service can be expected from low cost service provider. This is however never the case. Most business brokers demand 10% commission and some of them may be standing in front of you with absolute no experience!
You should NEVER pay 10% to start with as the maximum that Tri Source Consulting will demand will never exceed 8%. Commissions and fees are also a factor of the scope of the work and understandably the transaction size and can even be less than 1% under some circumstances!
Do I consider a private business sale or do I consult with a specialists?
With the sale of business small mistakes can be very costly. As businesses are easily 10 times more difficult to sell than houses and perhaps 100 times more difficult to sell than vehicles it will NEVER be a bad idea to consult with a specialist.
At Tri Source Consulting we often agree on an upfront nominal fee which can secure a lengthy discussion and guidance.
There are some hidden dangers in the structure and processes of selling a business that may cost parties far more than the cost of consultation, even if you sell to your son. The importance of understanding transfer of contingent liabilities and statutory requirements should never be underestimated.
Selling a business privately doesn’t mean that the price is not important. Thinking about it logically it still means that it should be carried out at more or less a market related value and a broker can guide this process.
Negotiations: Many buyers and seller are of the opinion that they have a near concluded transaction if there is a basic understanding between parties about price. There are however so many terms and conditions related to a transaction that requires skillful negotiations.
The largest challenge remains that of financing the transaction. It is important to understand that the function of allowing the buyer to borrow money from the seller and pay it back over a period of time with profits generated by the business constitute a gift and not a sale. The seller never received any money for the transaction other than profits that would have been his in any event and the purchaser never paid for anything.
In the philosophy of business broking we always need to consider the equation: ON the EFFECTIVE DATE the benefits and risks transfer to buyer and the money transfer to the seller.
What information do I need from my Business Broker?
- Ask him about his experience in business broking and that of the firm he represents.
- Test his knowledge on your unique business activity and establish weaknesses on relevant factors.
- Ask him if he is a registered business broker with the Estate agency Board. This is the law and failing proper registration with the authorities will certainly compromise you at some point in time.
- Ask how the business will be marketed in order to obtain maximum exposure to the relevant market segment.
- Enquire about his methodology to deal with information discreetly and to secure maximum protection against exposure to relevant stakeholders such as employees.
- Enquire about his networking with industry, broking community and data base of potential buyers.
What will be expected from me?
What will be expected from me when I want to sell my business?
If you are seriously considering selling your business, you probably have wondered what you could expect from him but this works both ways. To do their job, which is selling your company, maximising the selling price and terms, plus handling the details effectively, there are some things your selected business broker will expect from you.
By understanding these expectations, you will greatly improve the chances of a successful sale. Here are just a few:
- Next to continuing to run the business, working with your broker in helping to sell the company is a close second. It takes this kind of partnering to get the job done.
- Selling your business successfully will involve packaging detailed financial information in a format acceptable to buyers.
- The process of selling a business never happens overnight. Continuously supply the business broker with updated monthly management accounts and offer detail of any specific changes in the organisation that could or should have a bearing on the marketing profile presented to prospective business buyers.
Sell my Business - Further Reading: