The majority of business owners sell business only once in their lifetime. The same can be said for someone buying a business…they typically only do it once. But, a strategic, corporate or equity buyer, is likely to have been involved in quite a few transactions – some that worked and some that did not. What does this mean for the seller? It means buyers that express interest in your business may have a team of mergers & acquisitions advisers helping them. This has the potential to result in a lopsided negotiating arrangement – the amateur (the seller) versus the professional (the buyer). The following points will help business owners selling a business for sale by owner (BFSBO) protect themselves and even the playing field when working with the corporate buyer.
- Sell business is not like selling real estate. Confidentiality is, in all cases, critical. A seller does not want employees, suppliers, and customers/clients to be aware of a possible sale. Go to great lengths to protect the confidentiality of your information. When potential buyers inquire about a business, the seller should err on the side of sharing too little information rather than too much.
- The sales process cannot distract the owner(s) from managing the day-to-day operation of the business. Sellers should plan ahead on and learn about the proper ways of selling a business and manage their company at the same time. Delegate tasks if necessary. It is safe to assume selling a business could easily consume 20% of a seller’s typical work week.
- Some deals come unraveled late-stage because a buyer “thinks” they have adequate financing only to have that not be the case when they try to obtain the proper funds. Sellers should ask early-on for proof of financing and make sure they are comfortable with the buyer’s arrangements. All acquirers should be able to show the seller they have the financial resources to make the acquisition. Unless the company is a large and successful company where acquisition funds are not an issue, the buyer’s financial statements should be made available. A credit report is also important. Buyers that are financially capable of acquiring a business should not have difficulty supplying this information.
- Although due diligence is typically initiated by the buyer’s business brokers (or advisers), it’s important that sellers do their own due diligence. Is the buyer a good fit? Do they have experience in your industry? What are their goals in purchasing your company? It is extremely important the buyer be screened as much as the seller. Since a potential buyer will likely employ qualified business brokers (or advisers) to assist them with their due diligence, the seller should consider doing the same.
- A seller should also check for information about any prior purchases the buyer might have been a part of. This would include any previous financing contacts. Talking to a previous seller can reveal how their deal went; how the acquirer was to work with; whether they did everything they said they would; etc. Talking to managers of previous acquisitions by the buyer can tell a seller how employees were treated, etc.
- The chemistry between a buyer and a seller is important. Do you communicate well? Is information comfortably shared? Are questions openly asked and answered by both parties? If the seller is staying with the company for an extended period of time, it’s also critical that he/she is comfortable with not only the buyer but also with the new management team.