Sell A Business
What is your exit strategy? Selling your business is an excellent option.
Selling your business can be an excellent exit strategy. It is certainly preferable to “letting the business go" and seeing what you’ve built over the years with blood, sweat, and tears just go to waste. Besides that, if you can get paid for the value you’re leaving behind, why wouldn’t you take something over nothing? Unfortunately, that happens to a lot of businesses when the owner decides to retire and doesn’t consider selling, or they begin the selling process and decide not to take the best offer.
Are there other exit strategies? Yes. Some of them still involve listing the business for sale and require the services of a Business Broker, while some do not.
An exit strategy where you wouldn’t necessarily use a business broker is when you’re keeping the business in the family, and one of your children can inherit it. If you’ve raised them in the business, then hopefully they’ll be ready to take over when you’re ready to be done. Other exit strategies that don’t use the services of a business broker could be within organizations that are large enough to have their own mergers and acquisitions teams, or any transaction of stock. Business Brokers do not broker the sale of stock.
So, what exit options do you have if you’re an organization without stock and you’re not keeping it in the family? A business broker can help with any of the following exit strategies:
The first and most common option is to sell the business for a whole amount. The buyer might pay in cash or they might have capital funding or get approved for lending. You exit completely and the new owner assumes all ownership and operations. Most sellers who list their business for sale prefer this option. It’s the quickest and cleanest and they’re ready to exit fully.
Another option is to seller finance. Seller financing is commonly requested by buyers and it exponentially increases the pool of buyers when the seller is willing to do it. This means that the buyer uses you as the bank and you both agree on an initial deposit, interest, and payment plan. In traditional cases you are still exiting the business and the new owner assumes all ownership and operations, but you still have a vested interest in the business until you are paid in full. The more structure your business has, the more this could be an option since you’re relying on the structure, brand awareness, and goodwill of the business to carry the buyer long enough to pay you. We are not tax professionals, though one reason that sellers are often willing to finance is to reduce the tax burden of selling a business. The primary concern of seller financing is always whether the buyer can operate the business successfully and earn enough income to continue paying off the financing. Your recourse if they don’t pay is to reclaim ownership of the business, but if they’ve ruined relationships with customers, employees, or vendors, then you might not be reclaiming much.
Another option is to sell part of the business and keep part of it. This essentially sets up a partnership. You and the buyer would negotiate the amount of ownership and control and you’d certainly want an operating agreement to be part of the deal. Other professionals, such as a business lawyer, would need to be involved in these types of deals, though the broker would still assist you in valuing the business and finding the buyer. By selling part of the business and not all of it, you maintain some control while your new partner gradually pays you for full control or complete ownership. This is a more gradual strategy over time.
What is the process of selling my business?
There are actually many steps in the process of selling your business. These are the first four steps. If you’d like to know the entire process then schedule an initial visit with us and we will show you every step from beginning to end with an easy-to-understand graphic.
1. Meet Associated Business Brokers
In our first meeting we’ll go over the entire process of selling your business, not just these first four steps. We will also sign a confidentiality agreement, both you and us. A lot of business owners are hesitant to sign this agreement because they get worried that it obligates them to sell their business or to use us as their brokers. This is not a listing agreement (which comes later). This agreement is intended to protect you and your business information. It allows you to share information with us in confidence so that we can take the next steps.
2. Brokers Perform A Business Valuation
With a Confidentiality Agreement in place you’ll need to share some information with us so that we can perform a proper business valuation. This gives us a fair asking price for when we list the business for sale. In order to perform this properly we’ll have a business questionnaire to go over. You’ll also need to provide three years of business financials and an itemized list of tangible assets. Tax returns are not required from us at this stage, but it will be important to have them available when the business is listed for sale. This is called a “valuation" not an “evaluation". We are only focusing on the facts that affect selling value to your business, i.e. we determine a “value". However, this is the just the starting price. Similar to real estate, the business will only sell for what the market will bear. Learn more about the Business Valuation.
3. You Hire ABB As Your Brokers
Once we know a fair asking price, the next step is listing your business for sale. Since selling your business is 100% performance based, you’ll hire us by signing a listing agreement which gives us permission to sell your business for an agreed commission.
4. ABB Lists Your Business For Sale
We will use the information we gathered during the Business Valuation to write up a memorandum of your business and list it on the market with a fair asking price. This will invite buyers to start sending inquiries. We respond to their inquires after they sign a non-disclosure agreement. The business is not listed with a name or any identifiable information. No one should know its for sale except you, us, and those who sign an NDA. It is important to keep the business operating fully while it is listed for sale and that means keeping the fact that it’s for sale private from competitors, employees and customers.
Frequently Ask Questions
What is your commission?
We are not in the habit of publicizing our commission for any random person to see on the internet. We will say that it’s competitive and that we are good at what we do. The average commission for business brokers is 12%. We charge less than that.
That may seem like a lot since a lot of sellers compare our services to Realtors, and most Realtors charge 6%. This is not a Realty, it’s a business brokerage. Selling the business is 100% performance based, and all information is kept confidential. There is little if any risk. If you want to sell, then talk to us and we will be transparent in what it means to represent you in the sale of your business.
What is the likelihood that my business will sell?
About 30-40% of businesses that are listed for sale will actually sell. To a lot of people that seems like a low sell rate. This is largely due to the optimistic habit of business brokers listing any business for sale that they have the opportunity of listing. Even if they know it’s not likely to sell, why would a broker kill the deal before it even happens? Our job is to give it the best chance it has at selling and not to be presumptuous before it is even listed. There are all kinds of buyers and we never really know if it will sell until we list it for sale. There can even be buyers that see value where we don’t, or they see factors that aren’t included in the valuation, or there are factors that are specifically valuable to them. We don’t know if someone will buy it until we list it for sale.
If the business is owner-operated then likely the buyer will have to be an owner-operator. This means they need knowledge of the industry before they buy. The more structure a business has, the higher the net income, the longer you’ve been in business, and other factors certainly improve the chances of selling.
Are brokers the only reason for a low sell rate? Absolutely not. All too often a broker brings a willing and able buyer to the table and a seller chooses not to sell because their heart is set on a price that is too high. They decide that if a business won’t sell for at least a certain amount they won’t sell. So then what is the alternative? Often it’s walking away with nothing, and out of pride, very expensive pride, that’s what the seller chooses.
A business will only sell for what the market will bear.
What if I find the buyer. Do I still need a Business Broker?
A large part of our service is to find a willing and able buyer, but if you know someone who wants to buy, it will still benefit you to have a business broker help you with the sale, since we are experienced in helping sellers sell their business. We are more than just brokers, we are business consultants.
If you have a buyer then we will have a modified agreement to provide services for you that is different from the traditional listing agreement (because technically we don’t need to list the business for sale if you have a buyer).
Does performing the valuation make you my broker? Does that mean I'm obligated to sell?
We will be bound by a confidentiality agreement, but that is not a listing agreement. After the valuation is complete you’ll still have the decision whether to sell or not, or whether to have us list it for sale and represent you in the sale.
If I offer seller financing, when is your commission paid?
In a traditional sale, a broker’s commission is earned when they bring a willing and able buyer to the deal. It is paid when the selling agreement is completed, even if the buyer does not make a full payment for the business up front. In seller financing there is a different agreement (Promissory Note) that outlines the seller financing and that is what the loan servicing company follows when servicing the loan.
If you sell a portion of the business, not 100% of the business, then commission is paid on the portion that is sold, not the portion that you keep.
If you provide a buyer and still hire us to assist you in the sale then the consulting agreement will specify how and when the consulting fees are paid.
Do you also represent the buyer?
In real estate, when a Realtor represents both the seller and the buyer, it’s called dual agency. This means that they get the commission paid by both the seller and the buyer. Some states don’t allow this; Arizona is one that does.
Yet, we are not a Realty, we are a business brokerage. When a business is listed for sale the seller pays the full commission. We still have to disclose all the facts to the buyer, but we have a fiduciary duty to the seller.
Sometimes the buyer can have a broker (and we represent buyers too when they are not the seller, if a buyer wants to hire us). If a buyer’s broker brings a buyer to the sale then we will consider co-brokering. In those cases we still represent the seller. In most cases the buyer does not have representation and we think that is a big mistake.
Get Started With Your Business Valuation Now
Find out the value of your business. Determine a fair asking price as a step towards selling or buying.
Contact us today to get started on your business valuation or simply get more information. Fill out the form on our contact page or call us at 480-744-5919.