Top 10 Owner Concerns When Selling a Business

Are you looking for an exit strategy? Selling your business might be one option. However, there are some matters you ought to think about earlier before doing so. As M&A advisors and business brokers, we’ve seen and learned a lot servicing business owners, and selling a business is one of the biggest decisions you can make. Below, we highlight the top 10 concerns when selling a business.

#1.?Revenue is down, but I think my company has growth potential.

No one will acquire an enterprise for its current performance, however, all buyers prefer to see that a corporation has growth potential. Thus, it is truly indispensable that a seller entirely defines all possible growth paths for the company, and the underlying capital infusion required to reach such goal.

The current business owner is the most familiar with the business and therefore the most qualified individual to provide guidance for such growth. However, in some instances, it might take an external consultant or a business coach to help define such growth.

#2.?How long will it take to sell my business?

While it varies considerably from one transaction to another, the usual promoting time for a small retail or service provider ranges from four to eight months. For a larger enterprise, a six to twelve-month window. However, selling a business is a full-time job, and for that reason, we recommend hiring an M&A advisor or a business broker as opposed to “doing it yourself”.

... usual promoting time for a small retail or service provider ranges from four to eight months. For a larger enterprise, a six to twelve-month window.?

#3.?I’m not a salesperson, how do I even market my company?

The market for ‘companies for sale’ is very competitive, to say the least. There are hundreds of corporations for sale at any given time. And with the impending demographic shift, there are many baby boomers business owners ready to sell than to buy a business. Not to point out the Covid impact has everybody questioning subsequent steps.

The implication is that buyers will demand concise, convincing facts to explore an acquisition. The most important advertising documents in this process are the Blind Profile, Confidential Memorandum (CM), and an accredited third-party business valuation.

The blind profile supplies an approximate synopsis of the key metrics of the corporation – assets, employment, cash flow. However, it must remain confidential, and should not disclose the company name, unique operation, or exact location.

The CM contains detailed asset listing, tax return, growth projections, and a current and projected EBITDA with normalized Sellers Discretionary Cash Flow (SDCF). In addition, it should include the company’s competitive advantage, revenue streams, organization charts, and so forth. Everything an investor needs to evaluate and make a decision must be disclosed.

The most important advertising documents in this process are the Blind Profile, Confidential Memorandum (CM), and an accredited third-party business valuation.

Neglecting a CM, or solely relying on a valuation will limit the transaction price and/or jeopardize a sale altogether.

#4.?I don’t know where to begin, whom I should work with?

If you are planning an exit, you should focus on your priorities as a business owner, and it is not the sale. You must remain dedicated to operating the business and focusing on the performance of the company. Without a professional team in place to properly value and market the sale, the business owner is left with performing both tasks. The usual result is both efforts suffer.

Your team must be made up of 1) an experienced M&A advisor who will coordinate an unbiased certified business valuation, 2) a certified CPA/tax advisor with M&A experience, and 3) an Attorney whose focal point is on M&A transactions.

One component omitted and overseen by many sellers so often is the selection of inexperienced legal support. Indeed, the most common reason for an unsuccessful sale is usually linked to a sell-side legal professional who is not acquainted with the “ins and outs” of the M&A sale process.

#5.?What happens if my employees find out or even worse, my competition?

The knowledge about a pending business sale has an impact on vendors, employees, banks, landlords, and most importantly, customers. No individual likes change – the fear of the ‘unknown’.

In the case of a business sale, this can have a significant negative economic impact. Vendors can become concerned about receiving payments, employees fear lay-offs, and banks are concerned about the servicing of loans. Most importantly, customers will start to invite competitors to bid on their business in order to secure product/service sourcing in the future.

It is essential that clients, employees, suppliers, landlords, and lenders are not informed of the possible sale of the business. That is why it is necessary to have the proper team of advisors that will keep confidentiality throughout the process.

Thus, one key objective of the marketing documents—in particular, the blind profile (outlining the generalities of the transaction, marketplace, and business) is to maintain confidentiality with respect to the sale of the business, preventing stakeholders from learning about the sale.

It is essential that clients, employees, suppliers, landlords, and lenders are not informed of the possible sale of the business.?

#6.?It’s going to be a rough process.

Selling a business is a completely different transaction – one which business owners are not familiar with.

Most business owners feel intense anxiety during the sale process, particularly during periods of uncertainty or conflict. Every deal comes with a unique set of challenges.?A good M&A advisor does not expect a business owner to be an expert, but he/she will navigate the owner through the deal process. Being proactive, a good advisor can reassure a seller during these uncertain times.

Buyers sense uncertainty on the sell-side and are inclined to lose interest in a deal in such a scenario – often interpreting such uncertainty as lack of motivation on the sell-side.?Good M&A advisors can put a stop to this process before it spirals out of control by instilling confidence and ensuring the deal is appealing and efficient to all parties.

#7.??I haven’t been planning to sell, is it still possible?

Long-term planning is key to any successful business sale. By keeping updated records, a detailed business history, and a sales portfolio on hand at all times, it will make your planning pay off. You just never know when that perfect buyer may walk into your business and make you an offer you just can’t refuse.

Insufficient financials don’t necessarily have to prevent a business owner from selling a business or to accept a lower business valuation or transaction price. A good advisor will give sellers an early heads-up as to what needs to be improved in the financial reporting system. Often this can be accomplished with rather small adjustments.

Long-term planning is key to any successful business sale.

And whereas a proper valuation on the front end is very important, tax planning on the back end is just as important. It does a seller little good to have obtained one hundred percent of the asking price, only then to turn 50% of such over to the IRS or State government.

#8.?What type of deal is best for me?

Deal structure is very important with respect to valuation and tax planning. More importantly, often sellers rush to the highest bidder.?However, price is most likely less important than deal structure.

For example, are A/R and A/P included? How will employee retirement obligations be treated? What assets secure the seller's note? On what basis are royalties calculated, and what audit mechanism is in place? What kind of consulting and employment agreements will be put into place for the seller? Will SBA bank acquisition financing allow for a seller note payback?

A trusted M&A advisor can help you walk through each of these scenarios to decide which type of deal best fits your needs.

#9.?Am I asking enough or too much? I put everything I had into this company.

Setting a too-high or unrealistic price tag on a business can lead to a dead-end street. Expecting to get top dollar for a business that generates little or no profit is simply using bad business sense and jeopardizes confidentiality. Consider your industry, similar businesses, the economy, and your marketplace when pricing your business to sell.

Another mistake is to price the business too low. Often business owners will price their business low because they are burned out, suffer from an illness, or did not get good advice. Do research about other business sales before jumping in with both feet.

When working with a good M&A advisor they’ll be able to determine an accurate price point by way of an accredited, third-party valuation firm.

#10.?Is this the right buyer? I still want my employees and customers taken care of.

Taking the first offer may not necessarily be your BEST offer. Selling your business for top dollar with little or no money down along with an extended contract may lead you to lose it all due to a bad deal structure.

Evaluate your options and make the best selection for the long term. Ask yourself, is this the best person to buy and run my business? Or, can they quickly connect with my customer base and learn how to market effectively? When the business sale goes as planned, it creates a tremendous opportunity for both business owners and the success continues.

When working with a qualified M&A advisor, they prequalify all buyers to make sure they are a good fit for the purchase and have your best interests, as well as the interests of the company aligned.

Are you a business owner thinking about selling or buying a business? Book a free, no-obligation confidential conversation and learn more about how we might be able to help your business with mergers & acquisitions advisory. Contact Xavier Antoine.