We sell businesses. In fact, we’re one of the nation’s leading M&A advisors for the sale of small to midsize companies.
So why would we be talking about a business owner selling a business on their own?
Because we believe in full transparency. And, over the years, we’ve had more than a few owners ask, “Is it possible to sell my business on my own?”
So whether you’re asking because you feel a broker's commission is too high, or you’d just like to maintain more control of the sale, you’re not alone.
After all, you’ve spent several years building your business, reviewing financials, and negotiating with vendors. You can certainly find a buyer and get to the closing table, right?
It’s a reasonable question, but it is not as straightforward as you may think.
We’ve sold hundreds of businesses and have heard the stories, both good and bad.
In this article, we’ll walk you through situations when it may make sense to sell your business on your own. We’ll also touch on when it would be best to use a professional business broker or merger and acquisition (M&A) advisor.
Let’s dive in!
When It Makes Sense to Sell Your Business On Your Own
Although selling your business is complex, there are a few instances in which you may be able to sell on your own without the help of a business broker or M&A advisor.
You may be able to sell your business on your own if:
- You’ve been through the process of selling a business before
- You’re selling your business to a family member or employee
- You have established relationships with professional advisors that sell businesses on a regular basis
It may still make sense to hire an experienced intermediary, but these things tend to make it a bit easier to navigate the sale of your business on your own. In the right situations, and with the help of an experienced attorney and/or CPA, you can reasonably expect a good outcome.
For instance, if you’ve sold a business in the past and know what to expect, you’ll be more prepared for things that come up during the selling process. You may also have ongoing relationships with experienced professional advisors such as a CPA and attorney.
Selling your business to a family member or employee could be fairly straightforward. Confidentiality shouldn’t be an issue and you won’t have to spend your time vetting buyers.
If you feel confident the buyer can navigate any financing hurdles, you should be able to comfortably complete a successful transaction on your own.
No matter the situation, you’ll be much better off if you have experienced professionals on your side. Attorneys and CPAs can be a wealth of information and help ensure you make it to the closing table.
Just make sure you double-check to ensure that they have plenty of experience in selling businesses. Just like many other professions, the best specialize. You don’t want to take your chances with someone who hasn’t been through the selling process several times.
When It Makes Sense to Use an M&A Advisor
While there may be certain situations where selling your business on your own makes sense, we almost always recommend enlisting the help of an experienced business broker or M&A Advisor.
Why? Doing so gives you the greatest chance of getting the best price and terms. To help you determine whether you should use a business broker or M&A advisor to sell your business, here are 5 factors to consider.
1. The Cost Savings May Not Be What It Appears
One of the largest misconceptions is that selling your company on your own will save you money.
Can it happen? Of course. But we’ve seen hundreds of deals over the years, and it usually doesn’t work out.
In our experience, a great business broker or M&A advisor will provide value that far exceeds their commission. You’ll never have to look back and wonder “Did I really get the best deal I could have?”
With an experienced intermediary, you’ll have the best opportunity to end up with a buyer that’s a great fit, better overall deal terms, and peace of mind knowing you did everything you could to maximize the sale.
Let’s take a look at four reasons why the cost savings of selling your business on your own may not be as they would seem to be.
1. Experience Selling Businesses
Most owners sell a business only once in their lifetime. An experienced business broker or M&A advisor will have traveled the path of selling businesses hundreds of times.
Your broker will be able to anticipate and manage all the difficult nuances of selling, like dealing with lenders and negotiations while you stay focused on keeping your business profitable.
All brokers know the phrase “time kills all deals.” They’re trained to keep the sale moving forward in a well-thought-out, strategic manner.
Business owners who try to sell on their own may become caught up in the emotions of selling and drop the ball at some point throughout the process.
2. Ability to Create Competition
Using an experienced intermediary will greatly increase the number of potential buyers for your business.
Competition amongst buyers is the only way to make sure you’re getting the top price and terms for your company.
The merger and acquisition (M&A) firm you choose should be able to lay out a detailed process for marketing and advertising the sale of your business.
To start, a professional firm will put together a detailed write-up of your business, otherwise known as a Confidential Information Memorandum or a “CIM.” This document is the cornerstone of your marketing and, if done properly, will be 30 to 60 pages long.
A few of the country’s top firms also produce a professional marketing video. Let’s face it, video is powerful and can bring your business to life. Combined with a professional CIM, your business can’t help but stand out to buyers, their lenders, and investors. Here's an example marketing video that would be sent to qualified, vetted buyers:
The firm you choose should proactively perform the following outreach and advertising:
- Pre-screened Buyers: If the brokerage you are working with has been in business for many years, they should have an updated list of pre-screened buyers who are actively looking for a business. They should have interviewed the buyers and captured information such as their investment range, industry preferences, amount available for a down payment, and their geographic preferences.
- Strategics: Your broker should have the ability to quickly put together a list of companies in your industry. The list should include businesses in industries closely aligned with yours as they may provide a synergistic opportunity. However, talking to competitors can be a delicate dance. It's important you’re comfortable with how this approach will be handled and have the opportunity to review the list before the broker reaches out.
- Search Funds: In recent years, there has been a rise in buyers looking to acquire a business through a search fund. While search funds come in many forms, they’re generally a well-educated individual that has aligned with a group of investors. The individual will operate the business and the investors will provide the funding. For companies in the lower middle market, search funds can provide well-qualified candidates for your business.
- Online Listing Sites: Today, there are numerous online resources for anyone looking to acquire a business. For main street businesses, sites like bizbuysell.com, bizquest.com, businessesforsale.com, and businessesforsale.net provide buyers with the ability to search and sort available listings. And for the middle market, sites such as axial.net provide investors a platform to find deals.
- Broker Website: This one should be a given. All business brokers and M&A companies should have the ability to attractively list your business on their own website. Many serious buyers will peruse broker websites to stay on top of the most recent listings.
The bottom line? Through the implementation of these methods, you’ll see a big increase in the number of potential buyers. By increasing the number of potential buyers, you’ll have a much better chance of finding one that’s a great fit, as well as procuring the best possible price and terms.
3. Understanding Tax Implications
It’s easy for business owners to focus on the price a buyer offers to pay for the business. Don’t fall for this trap! In the end, the only thing that matters is the amount you put in your pocket AFTER taxes.
A good intermediary has a firm grasp of the tax implications of your sale. They’ll work with your accountant upfront to devise a tax minimization strategy, then work on your behalf to achieve the best possible outcome.
Don’t underestimate this part of the process. By negotiating and structuring your sale correctly, an experienced broker or M&A advisor can help save you tens of thousands of dollars.
4. You’ll Use Professional Advisors Regardless
Often, business owners go into selling their company on their own, underestimating the hundreds of little details and steps that need to be completed and tracked. From licensing, leases, inventory, and real estate, to employees and utilities, the number of items needing to be addressed can seem endless.
When you take an M&A advisor out of the equation, someone has to step in to take control. Often, this will be your attorney or CPA.
You’ll most certainly end up paying your CPA and attorney more to perform functions typically handled by a quality business broker or M&A firm. And if your attorney or CPA doesn't perform M&A work regularly, it may extend the timeline, further driving up costs.
2. You’ve Got a Business to Run
We’ve all heard it… the best time to sell is when things are going well.
When you have steadily increasing revenues and profits, buyers and lenders can feel confident about your business.
The worst that can happen is to take your eye off the ball while you’re selling your business. If revenues and profits decline, buyers get nervous. Lenders start wondering when, or if, things will turn around.
If you attempt to sell on your own, you’ll end up spending hundreds of hours on items like buyer inquiries and meetings, facility tours, negotiating deal terms, and navigating due diligence.
Not only can this pose a risk to company operations, but it can jeopardize your confidentiality. With a great business broker or M&A advisor in your corner, you’re able to remain focused on running your business during the sale.
An M&A advisor will be able to deal with the hundreds of little details, qualify buyers, and maintain confidentiality while you stay focused on keeping your business running well and profitably.
3. Confidentiality Is Key
The chance of a confidentiality breach is certainly much higher if you choose to handle the sale on your own.
Handling buyer inquiries, performing buyer tours of your facility, compiling financial information, sending banking and insurance information, and dozens of other deal-related items provide opportunities to blow your cover.
And make no mistake… a breach in confidentiality can be costly.
Depending on your situation, you stand the chance of employees leaving, customers becoming concerned, vendors demanding a change in terms, or competitors using the sale against you.
And to top it all off, you may blow up the deal if the buyer gets nervous about losing a key employee or two.
To help prevent this, an experienced broker will have a detailed plan to protect your confidentiality:
- Buyers are screened to ensure they have the financial ability to purchase your business.
- Confidentiality agreements are in place to discourage buyers from disclosing your business is for sale. The name of your business won’t be revealed until there’s a confidentiality agreement in place.
- Sensitive financial information and other business documents are housed in a secure online data room. Here, your broker will control who enters, what they look at, and what can be downloaded.
- The broker will help with when, and how, you will eventually tell your employees you’re selling.
- The broker will help manage interactions with landlords, insurance companies, utility companies, and vendors.
It’s vitally important to take confidentiality into account every step of the way. By doing so, you’ll minimize the risk of a less than desirable outcome.
4. Unqualified Buyers Can Be a Drain
Experienced business brokers have had the opportunity to work with thousands of potential buyers. Chances are, they’ve developed an internal radar to quickly detect serious buyers from non-serious buyers.
They will filter buyers with the following things in mind:
- Do they have the financial capability to acquire your business?
- Are they currently employed?
- Will they have to sell their house and relocate?
- Do they have experience in your industry?
- Do they have good credit?
- Is their spouse willing to move away from family and friends?
- Will their teenage daughter disown them when she’s forced to move away from her boyfriend? (Yep, we've really heard it before.)
Then you have private equity groups with their 15 page due diligence list, asking for audited financials.
And search funds with an excited twenty-something trying to convince a well seasoned board of directors why your company is a great fit.
Yep, there are a multitude of reasons deals don’t make it to an offer. There are even more that get an offer but don’t make it to the closing table.
And since great businesses typically receive dozens of inquiries, buyers can become… well, a bit of a drain.
5. The Best Price and Terms
Unfortunately, selling your business won’t be quite as easy as selling something like a house. During the sale of a home, you’ll have to agree on things like price, closing date, and who gets the refrigerator. With a business sale, price and closing date are just the beginning.
To start, having a business valuation done by an experienced intermediary is crucial.
If your asking price is set too high, it may be difficult to attract buyer and investor interest. Then, even if you come to an initial agreement with the buyer, you’re still not out of the woods because lenders and investors will require their own third-party valuation.
Set the price too low, and you’ll end up leaving an unknown amount of money on the table.
Since business brokers and M&A advisors focus on selling businesses day in and day out, they're going to be the best resource to help determine a “real world” business value. They will then do everything in their power to maximize your price and terms.
In addition to purchase price, there are dozens of items to be negotiated. Here are a few:
- Do you need to provide seller financing?
- How long should you allow for due diligence?
- Do you need to stay after the sale to train? Will you be paid?
- Do you get to keep the cash you have in the bank?
- What about your Accounts Receivable?
- Is an asset sale or stock sale more beneficial?
- How will the purchase price be allocated for tax purposes?
- Do you get to keep your personal vehicle?
- Should you let the buyer speak to your employees?
- Should you allow a portion of closing proceeds to be placed in escrow?
- Is an earn-out beneficial? How should it be structured?
As stated earlier, a great business broker or M&A Advisor will more than pay for themselves in the end.
Ready to Get Started?
Although most cases call for a business broker or M&A advisor, it’s important to find the right one for you and your company.
Some advisors charge large upfront fees for a valuation, hit you with a big retainer, or use methods that may compromise the confidentiality of your sale. Some handle deals in a size or industry different than yours. Some are inexperienced, and some are just plain bad.
Since 2001, MidStreet has had the honor of helping over 450 owners with the sale of their business. Whether you’re ready to sell today or at some point in the future, give us a call.
We’ll listen and then ask a few questions. If it turns out we’re not the best fit for you and your business, we’ll be happy to take the time to answer your questions and help in your search for a great advisor.
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Know Your Company's Worth
Prepare to sell by determining the value of your business.
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