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6 Steps to Sell Your Business
By Glen Cooper, CBI, CBA, BVAL
Inc., the nation's premier small business magazine, featured an exposé (Nov. 2001) about a national broker's dealings with business owner Cal Brown and his prolonged effort to sell his business, C&G Fence Co. of Litchfield, Maine.
The long saga of failed expectations ended recently with a successful sale, but only after Cal fired the national broker, consulted with his advisors, then hired Maine Business Brokers to value, list, market and sell his business.
What happened is as interesting as it is instructive.
The failures of the national broker offer interesting examples of what doesn't work and what a business seller should not do.
The marketing strategies, techniques and activities of Maine Business Brokers provide instructive lessons of 'how it's done.'
Case Study
When Cal decided to sell his $2 million fence-building business, he did what many business owners have done. He responded to a mailing from a national business brokerage and appraisal firm to appraise his business. After they completed their valuation, he met with a sales representative of the national firm and listed his business with them.
The national company placed a high price on the business, documented by a 28-page report. They promised a national advertising campaign. They promised that their large national staff would produce solid results. He believed them because their presentation seemed polished and professional.
Like nearly all sellers, Cal had never sold a business before. He liked the idea of hiring a national broker to make up for his own inexperience. Most of all, he liked the price they said he could achieve!
Cal has since learned that he missed a few steps. If you talk to him today, he will gladly tell you some lessons he's learned.
| 1. Form Your Team | 4. Target Prospects |
| 2. Price It Right | 5. Negotiate Professionally |
| 3. Prepare a Package | 6. Wrap It Up Quickly |
Form Your Team
It all starts with teamwork. Cal needed to form his team of professionals, then listen to them. But, like many business sellers, he didn't take this critical first step.
"I am used to making my own independent decisions," says Cal. "I consult with my wife, of course, but I have never had to assemble a team of outside professionals. For most decisions, I wouldn't. In this case, I should have."
Your team can include a business broker, lawyer, accountant and any other personal business advisor you rely upon. This team provides checks and balances to help you keep the process on track.
Price it Right
The first team task is to value the business. Pricing your business, however, may be more difficult than you expect. Your accountant and attorney may not have valuation expertise. None of your team members will want to appear too pessimistic about the price of your business.
This is a time for active listening. If your team agrees upon the price and terms, that's great. If they don't, look for suggestions from the team on ways to resolve the issue.
"It is a mistake to accept a quick price estimate and not check it out with other sources," says Cal. "Frankly, I was thinking of getting rich quick.
"I have learned, sadly, that it is a common technique of national brokers to price a business very high, take a large cash retainer, then effectively disappear. It's still hard for me to believe that this happened to me.
"When I finally consulted with Maine Business Brokers, and then compared what they said about my business value to what others were telling me, I discovered a wide agreement at a lower price range. It was a real learning experience for me.
"I didn't want to hear it, but it was a realistic price and terms combination that finally helped to get my business sold. The biggest disservice that a broker can do is to vastly overprice your business."
Prepare a Package
Buyer prospects expect a great deal of information. This means you should develop a sales presentation package to summarize your business story and supporting data. This is the broker's job, but you may choose to have it reviewed by your other advisors before it is given to any potential buyers.
Prospects expect you to present a thorough explanation of your business and the markets it serves, as well as historic and current financial statements.
"The valuation report prepared for me by the national broker had no value." says Cal.
"The professional sales package assembled by Maine Business Brokers was superb. It laid out the story of my business. It showed how the numbers worked. It pointed the buyer in the right direction."
A sales presentation package, sometimes called an "offering summary" or a "prospectus," is ideally prepared by the broker and reviewed by you, the seller. It is critical for both of you to have a mutual understanding of the facts and issues. Creating the package prepares each of you for the required sales effort.
Target Prospects
"The national broker provided the names of only four prospects," says Cal. "When I called to follow-up, I couldn't reach one, and the other three weren't remotely interested in my business. They were not real prospects for my business. They should have been screened out."
Finding the right buyer is the broker's job. Working with a well-managed database of prospects is how effective business brokers get the job done.
Qualified, serious buyer prospects (companies and individuals) register with business brokers in geographic areas where they expect to find business acquisition opportunities.
The national broker's promise that its database is larger is meaningless if those buyers aren't the right buyers for your geographic region, your industry or your size business.
Cal Brown's national broker boasted of 17,000 buyer prospects, yet identified only four. Maine Business Brokers maintains a buyer database 1/10th that size, but found 43.
Targeting and qualifying prospective buyers is a painstaking process. Maintaining lists and working with prospects is critical.
Negotiate Professionally
When you finally get an interested and qualified prospect that you believe is right for your business, plan your negotiation strategy carefully, but always negotiate in good faith.
Remember that your goal is to sell your business. Lay the foundation for the team effort that you and the buyer will need to get to a closing, and then to have a successful transition in the months that follow. Cal Brown was exemplary in following this advice.
Maine Business Brokers, says Cal, "was right there at every turn - on the phone, in my email, at my home or meeting with the prospective buyers in their offices. I needed their advice on a number of points during the long negotiation. I never had to wait to hear from them. They were always accessible and responsive."
Over 13 months, we identified over 80 potential prospects for Cal's business. Of those, 43 were qualified and interested enough to receive an offering summary. Only 5, however, pursued it further. In the end, the offer accepted was from a highly skilled buyer that Cal believed would be an excellent fit for his business.
Wrap It Up Quickly
After we received a solid offer from my preferred buyer, I also had another good prospect who wanted a showing," reports Cal. "Maine Business Brokers helped me decide how to proceed so I wouldn't offend either one.
"Even after the offer we accepted, they managed to keep the business on the market, so we didn't lose other prospects or miss any new ones. But they also helped me to keep the process moving forward."
Even the best buyer prospects can change their minds overnight. When someone is ready to make a commitment, our advice is to get it in writing and get a deposit. After the initial agreement is signed, close as quickly as possible.
Cal's business was sold using the services of experienced local professionals on each side. He and his wife, Gale, are now well on their way to planning a fulfilling retirement.
Note: We owe a debt of gratitude to Sprague & Curtis Real Estate in Augusta, Maine. Bill Sprague gave our name to Inc. as experienced and reputable business brokers. Coincidentally, his firm also referred the successful buyer prospect to us. We paid them a referral fee, of course, but we also wish to publicly acknowledge their role.
“I just finished reading all of your articles on your website. I must say, I don't think I've ever read better presentations of how this all works.”
Judy Miller
President, American Note Company, Inc.
