October 25, 2014

Reader Asks: How Do I Sell My Business?

How to sell a businessA 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.

30 Comments ▼

Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

30 Reactions

  1. 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.

  2. Good solid advice, Anita – as usual!

  3. I’m impressed with how complete this post is. ou covered everything. Very helpful.

  4. 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

  5. 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 :)

  6. Hey, Jan, no problem! I did not intend to sound critical. :) I agree with your pointing it out — good resource. Anita

  7. 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.

  8. 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!

  9. 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.

  10. 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 . . .

  11. 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

  12. 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.

  13. 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

  14. 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.

  15. 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! ;)

  16. 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

  17. 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

  18. 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.

  19. To the point, accurate, and easy to understand. Well Done.

  20. 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.

  21. Great article! I plan on selling my business soon, so your advice is really useful. While I was trying to find a site to post my business on, I came across BizTrader.com. It’s a cool website with really inexpensive selling fees. Good place to sell a business online. I know I’m going to.

  22. @Patricia — funny you should mention that site because I was just looking at BizTrader.com as well. I want to buy a business, and I was able to find a couple of good ones. Great place to buy a small business on the Internet. I second Patricia’s recommendation.

  23. You can also use the business valuation tools at BizAg.com.

  24. Great post! I would like to add to your suggestion of “outlines a solid game plan for marketing your business”. Make sure the business broker is advertising local and national via websites. Out of state companies or individuals are most likely searching for business opportunities in your area. I found a new start up gaining momentum that helps business sellers find buyers. http://www.usabizhub.com/

  25. There is some solid advice in your post, Anita.

    I’d like to point out that selling on your own doesn’t have to always net you less than using a broker. It is all about how and where you market it.

    I think in your explanation, you were referring to a traditional local selling. The success here is largely determined by the area in which you live. However, you can easily use business directories, business forums, craigslist, and other similar places to get yourself exposed to interested buyers.

    But as you described, a broker would be good in several cases. You just need to find a reputable one who will do all of the above legwork.

  26. Great post about selling a small business. Using a broker is a must in order to get top dollar when you sell the business. If you carry a note be sure to get at least 30% down (if not more) and be sure to confirm that the borrower’s credit score is at least a 650 or higher (especially if you plan on selling the note to a note buyer.

    If the business buyer/borrower is a corporate entity, be 100% sure that you include a written personal guarantee whether you keep the note or sell it off to a note buyer. Most business notes with a great down payment and an average credit score will sell between $0.75 and $0.90 on the dollar.

    That being said, the note must be structured correctly before origination which is why you or your business broker should stay in constant contact with the note buyer you plan on selling the business note to…. Thanks for the great article.

  27. Very good advice. Thanks for sharing.

    I’ve written a 26-page booklet outlining the steps an owner should go through to maximize value when selling a business. A complimentary copy is available here: http://www.williambruce.net/InfoforSellers.html.

    William Bruce, President
    American Business Brokers Association

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