Reader Asks: How Do I Sell My Business?
A reader, who I’ll call “Mary,” emailed me recently wanting to how to go about selling the family business. I thought the answer might be valuable to you, too. So I’m sharing the answer here.
“Mary” Writes This Question:
My husband & I own a business that he inherited from his Dad. His Dad started the operation in the 1960s and since 2002 we have been running it. My husband is owner/operator and I do all of the AP/AR, phones, typing documents, etc.
Simply put we’ve had enough & want to sell but neither of us have any idea how to go about it. We could probably sell for millions but, just as easily, we could be taken to the bank.
Any advice on how to go about starting this process? Any advice would be most appreciated.
Thanks!!!
“Mary”
The Answer to: How Do I Sell My Business?
Dear Mary,
Hire a business broker. They’re like real estate brokers, but handle businesses instead of just real estate.
You’re more likely to get fair value for your business with a good broker representing you. A broker will help you set an asking price that’s reasonable without leaving money on the table. A broker will actively market your business. The broker will also guide you through the selling process, which can be rather involved, with due diligence, negotiations and closing.
Interview at least 3 brokers so that you make an informed choice. Don’t rush your choice. Look for someone you have confidence in. Look for someone who:
(1) will do a comparable sales analysis and a professional valuation of your business; and
(2) outlines a solid game plan for marketing your business.
Where to Find a Business Broker
To find a broker, start with your accountant or attorney. That’s one of the benefits of having relationships with advisors. Often they know the business brokers in the local community.
Or you could go over and search at BizBuySell.com. It’s a well-known website that partners with the Wall Street Journal. There’s a section that lists business brokers. Be sure to ask for references and check them.
Don’t Try to Sell on Your Own
Unless you are used to wheeling and dealing, I do not recommend trying to sell your business on your own. You’d still have to value the business so as not to leave money on the table — and that’s hard for a layman to do accurately. Or you’d have to pay for a professional valuation anyway.
Selling a business is an involved process. It’s best to have an experienced professional on your side to show you the ropes. On top of that, you’d still have to do all the marketing — something that’s hard to do while you’re running the business day to day. It takes 9 months on average to sell a business. You can’t afford to neglect the business for such an extended time while you’re caught up selling it. If revenues/profits drop, the selling price also suffers.
Fees and Commissions
A word about broker fees: You’ll likely pay a commission of around 10% of the sales price. (See also Business Toolkit.) That’s just a rule of thumb, not a guarantee. Some brokers charge more. Some charge less on any real-estate involved. If you interview at least 3 brokers, you’ll get a sense for the going rate for fees in your industry and geographical area.
I never begrudge paying a good professional. Instead I look at the end result. Am I likely to have more money in my pocket after a sale by using a broker, as opposed to going it alone and possibly making a big mistake?
Consider this example:
Selling on your own you get $600,000 for your business. But if you had hired a good business broker who gets $750,000 for your business, and takes a 10% commission, you’d still net $675,000 or $75K more than on your own. How could the broker get such a higher price? Because valuing a business is an art, not a science, just like negotiating a good deal is an art. A broker can help with both.
Good luck to you and your husband.
April 15th, 2008 at 5:57 am
Anita, if i may i’d like to contribute with a link. Mary, there’s a usefull resource over at Inc magazine called businesses for sale:
http://www.bizbuysell.com/cgi-bin/adhome?J=n
I agree with Anita on the fact that you should not sell on your own, but that website could give you an ideea on how others are selling their businesses.
April 15th, 2008 at 6:10 am
Good solid advice, Anita - as usual!
April 15th, 2008 at 7:54 am
I’m impressed with how complete this post is. ou covered everything. Very helpful.
April 15th, 2008 at 10:56 am
Hi Jan, Thank you so much for pointing out that link for readers.
What you’ve pointed out is actually a module of BizBuySell, the site I mentioned too. That site is an excellent resource to see other listings of other businesses for sale.
Anita
April 15th, 2008 at 11:22 am
Anita, you’re right. sorry for reposting, i didn’t pay attention to the url, looks like it’s a co-branded site with inc.com. ooops
April 15th, 2008 at 11:46 am
Hey, Jan, no problem! I did not intend to sound critical.
I agree with your pointing it out — good resource. Anita
April 15th, 2008 at 12:48 pm
Excellent information Anita. Did you know you can buy and sell businesses for sale for free at http://www.GlobalBX.com
They have an excellent resource center and a comprehensive list of business brokers as well.
April 15th, 2008 at 1:09 pm
This is such good, solid complete advice! If you’re going to do more of this - I’d love to see this saved in a section on the site - so that other business experts can contribute and round out the discussion. This is fantastic!
April 15th, 2008 at 2:12 pm
Hi Anita. Having bought and sold several businesses over the years, I have to say your advice is spot-on. Brokers help experienced sellers get top dollar. And an inexperienced seller (without someone watching his / her back) is a sheep waiting to be fleeced.
April 15th, 2008 at 2:37 pm
[…] Anita Campbell over at Small Business Trends blog answered a question from a reader regarding how to go about selling the family business. The answer is complete and well worth the […]
April 15th, 2008 at 2:51 pm
Selling a Business - Get a Lawyer…
Use the same measure for selling that you use for purchasing. - Abu Bakr© flattop341 Smallbiztrends writer Anita Campbell posted an article today about selling a business in response to a reader who had written her asking how to go……
April 15th, 2008 at 3:35 pm
Anita, I have to agree with Ivana here. I really like the question and answer concept and the information contained is of use to many I’m sure. Could we see the beginnings of a new section here? Maybe a Reader Questions and Answers page? I like that . . .
April 15th, 2008 at 6:25 pm
Anita, solid advice for your readers. Another consideration for sellers is the type of broker they hire. If you are selling a website or internet based business, you should seek out a qualified, knowledgeable and experienced website business broker that understands the specific fundamentals that are unique to these businesses. They will be able to negotiate from a position of strength and wisdom and more accurately appraise the true market value of an internet business. Finally, never pay in advance - only for performance - that is definitely a red flag!
David Fairley
Internet Business Broker
April 15th, 2008 at 8:29 pm
I agree with Ivana & Chris that this could make for a great addition to the site. Not only was your response to the question thorough but everyone else’s comments gave great additional advice. Hopefully we’ll see an “Ask Anita” section soon.
April 15th, 2008 at 9:10 pm
Anita,
When I sold my coaching business it was to a friend who knew exactly how well I was doing.
Sometimes you have to look close!
-Shama
April 15th, 2008 at 9:44 pm
Good advice - I’d add two more things:
1. Listen to the advice of your broker - if they say paint/simplify/tweak the business to make it easier to sell - do it! They know what buyers are looking for - and they know the realistic price for quick sale.
2. Be ready if the fish wants to bite - contracts organised, leases ready, inventory etc. I talk with restaurant and cafe owners who want to sell and most aren’t nearly ready.
April 16th, 2008 at 5:08 pm
Great advice for all business owners! I agree with Ken Burgin as well - make sure to have all your ducks in a row - especially client and inventory lists. Comprehensive records make selling a business an easy sell!
April 17th, 2008 at 10:31 am
Hi Shama,
Anyone who has a buyer lined up from among friends and family, that’s fabulous. That takes the marketing step out of the process.
I still recommend getting a professional valuation done, so that both you and the buyer know what fair market value is.
Also, be sure to visit your tax advisor and your attorney early, so that you can plan the best deal structure for tax purposes and get everything documented appropriately.
Anita
April 17th, 2008 at 10:43 am
Let me add these additional points as of April 17, 2008. I have received a number of emails in response to this article (thank you all very much!):
(1) Inform your tax accountant early about your plans to sell. They can help you strategize the best deal structure. How you structure a transaction (as an asset sale versus a sale of the entire company, or how you handle any purchase price holdbacks, etc.) can significantly affect how much taxes you pay. Why pay any more than you need to, right?
(2) Inform your attorney early on of your plans to sell and keep him/her in the loop along the way. One attorney writes, “my client asked me to draw up the contract for the deal. Unfortunately he agreed to disadvantageous terms early on in the term sheet, and was bound by them and felt morally obligated. He should have brought me the term sheet before signing it.”
(3) Another person writes and says that some of the advice in the Business Toolkit article I linked to above is not good advice. I am trying to get more specifics on what elements the reader was objecting to and will update if I learn more.
– Anita, Editor
April 18th, 2008 at 3:37 am
Great advice. Could not have put much better myself. Just want to emphasize the importance of choosing the right broker. There is a very good article on INC magazine http://www.inc.com/articles/2001/10/23562.html on the questions you should ask a business broker. Also, http://www.bizbuysell.com has a list of questions to ask a business broker. The best place to find a business broker is IBBA, the International Business Brokers Association with approximately 2000 members, committed to high standards of professional competence through education and adhering to the association’s code of ethics.
I slightly disagree with John. You can not sell your business on Globalbx or any of the other listing sites on the internet. You can list it, and attract enquiries. But this is a long, long way of selling your business.
Also, David Fairley considers an up-front fee, or retainer, a “red-flag”. I do charge one and I would recommend that other brokers do. Most brokers do not. It all comes down to your investigation of the broker that best suits you. If your broker can convince that he is the best possible representation you could have, I would suggest that is well worth to pay him an up-front fee. If you do not trust him enough to pay him up-front then perhaps you should try to find another broker.
April 20th, 2008 at 4:30 pm
To the point, accurate, and easy to understand. Well Done.
April 20th, 2008 at 7:00 pm
Informative post! Good that you added additional points. Here is Sweden, selling a family owned business is pretty complicated and it could end up with a tax backlash.
April 21st, 2008 at 4:28 pm
[…] 10% commission – You’ll likely pay a 10% commission to a businesb broker if you hire one. If a business sells for more than $1 Million, ask for a stepped However, Don’t be tempted to eliminate a broker to save money — it smarter and it could be more cost effective to use a broker. […]