When you are preparing to sell your business and embrace the next rewarding chapter in your life, we highly recommend hiring a business broker rather than trying to navigate the process on your own. Your broker can assist with placing the business on the market, fielding offers and inquiries on your behalf, negotiating the deal and, ultimately, completing the transaction.
Choosing a broker sets the stage for the entire journey you are about to take. Before you engage anyone, ask them about these four critical factors:
Brokers focus first and foremost on securing your listing, as it is a prerequisite to a potential sale. Your goal, however, is not merely to list the business. Your goal is to sell it. Ask your prospective broker how many listings they currently have and how many companies they have sold. You want someone who demonstrates a high close rate rather than a high volume of listings. High close rates indicate a broker who only takes on businesses that he or she is genuinely committed to brokering. This type of broker commits time to the client as well as to the sale.
Many brokers will allow the business owner to set the sale price—again because they want to land the listing. We are not demeaning or devaluing these brokers; we are just stating the nature of the profession. Meanwhile, owners often believe their businesses are worth much more than the market will pay.
The market determines your sale price, aka fair market value; not you and not your broker. The business is worth only what someone is willing to pay. Ask the potential broker how they go about determining the asking price. What are their listings’ average times on the market? Setting a market-savvy sale price often means the difference between closing the deal in six months and seeing it sit for a year or more with constant markdowns to get to the “right” price.
Sale price doesn’t say it all. Ask about what part sale terms play in designing the deal. An offer way outside of fair market value indicates a high likelihood that the terms might not be ideal for you. Sure, you can sell it for more—and get paid over the next 30 years!
Some buyers entice a seller with a high number then make up the difference by including net working capital and/or excluding the debt. Others offer to pay the sale price over time from the proceeds of the business, giving themselves the option to walk away if the business fails and effectively giving you back a depleted company with no money to show for the sale. You want a broker who is willing to get into these kinds of details before you sign with them.
Perhaps the most important thing for you to know going in is that the sale price does not represent the after-tax cash, i.e. the actual amount of money that you receive when you close the deal. How much you walk away with is a factor of the sale price minus service fees and expenses (broker commission, attorneys, etc.), minus taxes and any debt. The service fees tend to jump right out, but taxes, well, they can sneak up on you. Taxes are something your broker should understand and be willing to discuss upfront. Make sure you have a broker who takes this into account when quoting your walkaway dollars.
Look beyond the listing and choose a broker who can and will address these four critical aspects of selling your business. ECG is committed to working with salable businesses under a promise that we will always keep your best interests at heart. Reach out when you are ready to talk.