Voices: Buzz Harris | Consider two paths to follow when selling a business
February 13, 2017
"We didn't actually overspend our budget.The allocation simply fell short of expenditure." – Keith Davis
When business owners decided to sell their business, they have two distinctly different paths to follow:
Bring in a team of professionals who will assist them in making one of the most important decisions of their lives.
If the sellers decide to do it themselves, they must make sure they are prepared to deal with picking up the phone and telling a short list of prospective buyers that they were thinking about selling.
More importantly, sellers must be prepared to deal with the risks associated with such a decision.
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Imagine the impact the news of a pending sale would have on sellers' businesses when their competition, customers, employees and suppliers find out.
One of the big differences with following the other path is that the team of professional business brokers opens up the sellers business to many potential buyers.
Just like most people don't want to limit the sale of their house or a car to one buyer, sellers shouldn't restrict their pool of buyers.
The by product of this is that the minutia associated with finding a buyer does not interrupt the sellers' attention, enabling them to focus on increasing their cash flow to make their business even more attractive.
When business owners decided to follow this path they need to ask themselves, "What should I look for in a business broker?"
Like any partner that sellers bring into their business, the invitee needs to possess a few fundamental characteristics.
One of the basic traits is credibility, which comes in many forms. For example, if the broker says he can get the seller's asking price or more, be wary. Since owners sometimes overvalue their business, sellers must be cautious if the broker says he can meet or beat their expectations.
Related to that are the brokers who want an up-front fee. They get owners excited by telling them what they want to hear and then have them write a check before any marketing has begun, let alone a prospect located.
For example, a leading retailer in northern Nevada paid a "broker" $30,000 to have the business "appraised" at $7 million.
Three years and a new broker later, it is in escrow at half that amount.
Sellers must make sure their broker represents a wide selection of businesses and, importantly, make sure they are quality and profitable businesses.
Nothing diminishes a broker's credibility with a legitimate buyer faster than when they present a list of unprofitable businesses for sale.
Another trait a professional broker must have is confidentiality. Sellers need to understand how and when their broker will share their business with prospective buyers.
As simple as it sounds, sellers must make sure the name of their business does not appear in any collateral material:
Think of the negative impact a local retailer experienced when customers flipping through the local Multiple Listing Service book saw a picture of the business being for sale.
Envision the damage caused to another northern Nevada manufacturer when competitors found out his business was for sale when it was identified by name on a web site.
In both of these actual cases, the sellers were put in a position where they had no option but to sell — which is not a particularly strong negotiating position to be in.
Finally, a broker must possess experience. They must be licensed, but also should be focused strictly on selling businesses, not residential real estate.
They must possess expertise in the means of locating buyers, locally and nationally. Successfully structuring a transaction that is mutually beneficial takes familiarity.
If a broker is unable to explain to the seller what makes a successful transaction, they are likely not going to be able to explain it to a buyer.
Buzz Harris is a licensed business broker with The Liberty Group of Nevada. He can be reached at BHarris@TheLibertyGroupofNevada.com or 775-825-3948.