One of the biggest questions to be addressed is whether or not to sell it yourself or use an intermediary. There are valid points for both sides of the argument and a lot depends upon your particular situation.
The size of a business will determine the kind of intermediary needed. Most common is the business broker. While brokers generally market themselves as a go-between on any size business, in reality they best serve the small business sector where transactions are between an owner-operator and a buyer who intends to operate, or at least oversee the daily business operations. Once you get into larger businesses and complex transactions, investment bankers are more commonly used to facilitate transactions.
It is important to understand how an intermediary works. In smaller business sales, they are paid entirely on commission. In larger sales, in addition to a commission, an upfront fee may be required (which sometimes is credited against the final commission) and the amounts can vary greatly. Since small business sales represent the largest segment of the business for sale market, we will focus upon business brokers. While the percentages vary, a ten percent fee based upon the total transaction value is common.
Benefit
Sell it Yourself
---
Hire a Broker
Proceeds from the sale
100%
---
90%
Control of process
Complete
---
Limited
Negotiating ability
Complete
---
Limited
Closing timeline
Immediate
---
Several years
Buyer selection
Complete
---
Limited
Diana was approached by a well-known financial institution representative to potentially sell her six store $9,000,000 school supply chain that she had operated for thirteen years. The brokerage company had a very intriguing presentation – they were going to compile an in-depth analysis of the business and generate a detailed offering memorandum to market the business sale along with a comprehensive valuation and accompanying business plan. Diana was shown several examples of the work they did which she found very impressive.
The company required an upfront fee of $25,000 which they would credit against any commissions earned, and their big pitch was that even if the business did not sell, Diana would have a robust business plan she could use in the future for the business (I’m not sure that she needed their business plan as she was doing just fine). Given the valuation they compiled, her thinking was the upfront money was negligible compared to the price they expected to get for her business.
Sure enough no sale ever materialized and the alleged business plan contained nothing that Diana didn’t already know about how to grow her own company.
If Diana’s case is indicative of how brokers work, it would be easy to decide to never even consider using one, however, that is not the lesson. Rather, it is for sellers to do their own due diligence before hiring a broker.
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Get multiple investors to compete against each other to purchase all or part of your business.
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Avoid making the mistakes other business owners make.
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Discover what other business owners are doing to attract private equity investors and buyers. Avoid the Top 10 Mistakes Owners Make When Selling
Selling a business takes both careful preparation and the ability to handle a complex transaction — with the help of an attorney, of course. Since most business owners are not experienced in selling a business, they will make mistakes along the way. Here are 10 of the most common mistakes to avoid:
Not learning the ropes.Like anything you do in business, there will be a learning curve when it comes to selling a business. Learn the terminology and how the selling process typically proceeds so that you can structure the deal properly and come out a winner. Setting a price too soon.You set yourself at an immediate disadvantage if you state a price without knowing the potential value of the business. Do not sell yourself short by setting a price too quickly. Assess the value of your business very carefully with your accountant or financial advisor and your attorney, and then set a price. Remember, you can always come down, but you generally cannot go up once you have determined your selling price. Selling too quickly. Unless you have to sell the business quickly for financial or personal reasons, you should not rush to a sale without exploring all of your options to determine whether or not you are getting a fair value for your business. Lack of confidentiality during the sales process.Once word gets out that the business is being sold employees may leave, vendors may hold back on deals, and customers may head to your competitors. The value of your business can drop quickly if you do not maintain confidentiality. Not increasing the value.Owners who know well in advance that they want to sell the business have time to build up the value and make it more attractive to buyers. Not identifying the best buyers.You need to spend time on serious buyers only. If a potential buyer is not pre-qualified or does not appear to be prepared to make an offer, you may very likely be wasting your time. Do not spend time with the wrong buyers. Being unprepared to defend your valuation.If you have worked hard to create a value for your business, you should be prepared to defend and substantiate that value. Prepare backup materials to defend the value of your business. Failing to negotiate.How much leverage you have may depend largely on how many potential buyers are out there. Nonetheless, you need to be prepared to negotiate, and for this reason you should have professional guidance when you sell a business. Waiting too long to sell.Many business owners regret not selling at the most opportune time. By waiting, they subsequently encounter increased competition or have a product that has declined in value because of economic conditions. If you are thinking of selling, pay attention to changes in the economy and to the state of your industry, and look for the best selling opportunity. Not being prepared.You should prepare documentation which will justify your asking price to the seller. Without adequate documentation, you are asking the seller to enter into the sale blindly. Below is the list of documents you should prepare ahead of time.
Seller Documents Needed Initially
1. Financial Statements for current and past three years: balance sheet, income statement, tax return for business 2. Statement of Seller’s Discretionary Earnings or cash flow 3. Financial ratios and trends 4. Photos of business 5. List of opportunities for improvement with revenue/profit projections for each 6. Marketing Plan and samples of marketing materials 7. Evidence of major obligations (loans, leases), customer commitments, and policy decisions.
Seller Documents Needed for Buyer’s Due Diligence
1. Governance documents: board minutes, policies, announcements to employees 2. Note for seller financing 3. Accounts payable and accounts receivable aging reports 4. Inventory list with value detail 5. List of furnishings, fixtures, and equipment with value detail* 6. Asset depreciation schedule for tax returns
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Discover How To Sell Your Business For Maximum Profit with the Business Sellers Toolkit
Areas of Training
Valuations
Negotiations
Marketing
Transaction agreements
Timing
Team building
Buyer selection
Success doesn't happen by accident. Apply the proven business exit strategies training to reach your goals. Learn from entrepreneurs who have successfully sold businesses without the assistance of business brokers or M&A firms.
Forms and Templates Included in the Toolkit:
Non-disclosure agreement (NDA)
When selling a business, it is imperative that confidentiality is maintained. A non-disclosure agreement is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to or by third parties.
Communications Plan Template
When selling a business, a clear Communications Plan is essential to avoid information to leak out in an uncontrolled and damaging fashion. Use of this template to prepare a professional plan of communication for your business sale.
Advisory and Consulting Agreement
An advisory and consulting contract outlines the scope of the work, payment schedules, and deadlines when hiring an independent consultant or advisor. This sample template includes a confidentiality clause, indemnification clause, insurance expectations, as well as other key provisions designed to get the job done and protect you and your business.
Business Valuation Template
This open-source MS Excel worksheet utilizes DCF (Discounted Cash Flow) - a widely accepted method among business appraisers to calculate the value of a profitable company. Use this free spreadsheet template to get a clue about how to price your business.
Sales Memorandum Template
When selling your business, the Sales Memorandum is a document that owners tend to prepare to introduce the values of their company to potential buyers. It is also known as the Memorandum of Sale.
Complete Due Diligence Checklist
This worksheet provides a comprehensive list of terms and conditions that the parties want to consider in the buy-sell agreement and the types of documentation the seller (or buyer) should prepare.
Due Diligence Checklist for Selling a Sole Proprietorship
This due diligence checklist serves two purposes: to provide a comprehensive list of possible terms and conditions of the deal and to show the types of documentation the seller should begin preparing for the review.
Due Diligence Checklist for Selling a Business
This is a general-purpose checklist of terms and questions that need to be addressed in the course of a Due Diligence; i.e., the process of checking on everything before selling or buying a business.
Business for Sale Presentation Template
This is a sample PowerPoint presentation to help you present your business for sale. It has just 7 slides for expressing the key values of the company. Feel free to download it, then update the file and create your very own version.
Non-Competition Agreement
The purpose of a business-to-business Non-Compete, Non-Solicitation Contract is to restrict the Seller from entering into a business which will compete with the Buyer after the sale, for some period of time thus protecting the Buyer’s post-closing interests.
Non-Disclosure Agreement Template
When selling or buying a business, use a Non-disclosure Agreement (NDA) or Confidentiality Agreement (CA) with buyer prospects to keep control of your proprietary information. It helps you protect your business secrets such as customer data and pricing.
Letter of Intent Template to Buy a Sole Proprietorship
If your intention is to buy a sole-proprietor business, then use this template to write your Letter of Intent to the seller. This is also known as an Offer to Purchase a Business or Proposal to Buy a Business.
Letter of Intent Template to Buy a Limited Liability Company
When you're negotiating the sale of an LLC, use a Letter of Intent (proposal). The purpose of this document is to facilitate the start of a deal so that the buyer and seller understand the key business and contractual terms involved. LLC means Limited Liability Company.
Letter of Intent Template to Purchase a Business
A Letter of Intent is a formal document that is provided by the buyer after an initial period of due diligence has been completed. This forms the basis for a legally binding Business Sale Agreement. Use this template to draft your own letter of intent (proposal) to purchase a business.
Term Sheet Template for Sale of Business
A Term Sheet establishes general terms for a buy-sell agreement on a business sale. This is also known as Letter of Intent, Proposal to Buy a Business or Purchase Offer. A template to draft your own term-sheet is provided.
Venture Capital Term Sheet Template
This is a sample term sheet to outline the conditions by which an investor - angel or venture capital firm - will make an investment in a business. Typically, to buy shares or stock.
Business Sale Agreement Template - Sole Proprietorship
When it's time to sell your sole proprietorship or partnership, a Business Sale Agreement sets down the terms of the sale, including the purchase price and the closing details. Use this template to draft your own contract.
Business Sale Agreement to Selling a Limited Company
When it's time to sell your Limited Liability Company (LLC), a Business Sale Agreement sets down the terms of the deal, such as purchase price, payment terms, and the closing details of the transaction.
Stock Sale Agreement Template
A business stock sale agreement defines the terms of a business sale where the transaction involves the shares (stock) of the company. This includes the purchase price and the closing details of the transaction.
Sale of Business Assets Agreement
What if you want to sell your company's assets but not the whole business as a legal entity? This is a contract (agreement) template for the sale of assets, both tangible and intangible, of a company. Included is a non-compete clause.
Seller Financing Agreement Template
In some cases the buyer of a business may not have all the capital required to pay the full purchase price. One option to solve this problem is called Seller Financing (Owner Financing). This is a loan the seller makes to the buyer to facilitate the sale.
Promissory Note Template
Selling a business with Seller Financing: The Promissory Note is the instrument that lays out the exact terms of a loan including security, repayment, interest rate, and penalties.
Bill of Sale Template
When closing a business sale, a Bill of Sale is the document that explicitly transfers ownership of the business assets or shares (stock) and acts as a confirmatory receipt for the transaction.
How-To Guides
Expert Articles and How-to Guides on Business Sale
A collection of how-to guides, expert articles, and case studies. Segmented by the 4-track framework of the business sale process.
Top 5 Guides on Selling a Business
Business Valuation Methods
Tax Considerations When Selling a Business
How to Value a Business: a Step-by-Step Valuation Guide
How it Works to Sell a Small Business - A Complete Guide
How to Sell a Restaurant: 5 Hints for the Owner
Checking the Status
How it Works to Sell a Small Business - A Complete Guide
This is a complete guide to selling a small business. Topics discussed: hiring a broker vs DIY, business valuation, legal questions, tax implications, steps of the sale, confidentiality, etc. Small business owners should consult with this Guide before committing any actions.
Transferring your business to a family member, to your son or daughter, requires planning and tax considerations. You must figure out what your retirement needs are and the benefits of either selling the business to a family member or giving it to them as a gift.
How to Sell a Sole Proprietorship
A sole proprietorship is a business without a separate legal entity. Find out how to sell such a business and what you must know prior to transfer the ownership. Due diligence and tax implications addressed.
Selling a Business to Employees
Learn how to sell a business to employees, or to management by implementing ESOP (Employee Stock Ownership Plan) or MBO (Managemet Buyout).
12 Ways to Exit Your Business
Exit strategy is something that every business owner looks for at some stage of their life. Even if you are a small business owner, you need to figure out the right way to leave your company and hand over the keys.
Selling Your Business to a Competitor
Selling your business to a competitor can mean saving time and money from trying to find a third-party buyer. Competitors are already familiar with the industry of your business and they know how to manage it properly. Owners just need to be wary of the risks involved by learning how to protect themselves throughout the sale.
How to Sell a Franchise Business
Selling a franchise business can be easy for finding buyers but tricky when it comes to the terms and conditions set forth by the franchisor. Franchisees must learn the rules, restrictions, and obligations of reselling their franchise to a new buyer.
Selling a Business: How To Communicate Your Decision
This article guides you through the process of communicating your decision to sell your business - externally and internally. Use the Communications Plan template provided.
How Long Does it Take to Sell a Business
Learn about the length of time it takes to sell a business. All information is backed by statistics and verified information. Then, learn how to speed up the sales process by implementing a series of strategies which can motivate the buyer to close the deal faster.
Is Your Business Sellable?
The primary reason businesses are not salable is that business owners fail to plan for the sale. Unrealistic valuation, customer concentration and poor accounting are common obstacles.
"Should I Sell My Business?" - 10 Reasons Why Owners Decide to Sell
Should you sell your business? Read about common reasons why small business owners are selling their companies. As it turns out, their choices are made up of 10 different scenarios that a business owner might find themselves in.
Preparing for Sale
Business Valuation Methods
These common business valuation methods give you a solid platform for price negotiations: profit multiplier, discounted cash flow, comparables, and asset valuation. Examples included.
How to Value a Business: a Step-by-Step Valuation Guide
How do you value your business? Here is a practical, step-by-step guide to small business valuation. DCF - Discounted Cash Flow method discussed in detail.
How to Prepare a Business Selling Memorandum
Read about and how to prepare a Sales Memorandum when selling your business. It finalizes your sale proposition, the key selling points, and drives the promotional messages used in your advertising.
Selling a Business With Debt
Learn about debt considerations when selling a business. What happens to debt? Stock sale vs asset sales. How business value is affected by debt and more..
Enterprise Value
Enterprise Value (EV) is a measure of a company’s total business value. EV is the theoretical price for a business if it were to be bought.
How Do You Value a Business - Models and Formulas
What methods or formulas can be used to value a business? Read this how-to article about some common valuation models such as asset-based, comparative, option pricing and the DSF-equation.
Some Tips for Accurately Valuing an Existing Business
Common business valuation methods include: calculating the value of the underlying assets, finding the liquidation value, and calculating the future income potential of the business (also called as Discounted Free Cash Flow to Owners).
How to Sell a Business Fast
Selling a small business fast requires the owner to take certain steps in finding the right buyer and making preparations within the organization to prepare for the sale.
Seller's Discretionary Earnings as Basis for Business Valuation
Valuation of privately own companies earning income of 1 million or less is often based on Seller’s Discretionary Earnings (SDE), a common metric
How to Calculate Post-Money Valuation of a Private Limited Company
Post-money valuation (enterprise value) is determined by calculating number of factors. This goes beyond looking at debt, current market value and cash on hand.
Preparing Your Business for Sale
There are a number of things you can do to get the most out of the sale of your business. Here's a checklist to prepare your business for sale.
Selling Your Business During Divorce
A married businessperson needs to protect their business interests early on in case they get divorced from their spouse. Read how to make your business assets divorce-proof.
Going to Market
Where to Sell a Business in 2019
Where do you sell your small business in 2019? Which sites to consider for an online listing and what are the criteria to compare them? This is an overview of the top business for sale marketplace websites.
Selling Your Business Without a Broker
Selling a business? You mine as well go without a business broker and save time and money. Selling a company without a broker is reasonable, and not as hard as you might think.
Selling a Non-Profitable Business
How to sell a business that is losing money? Read this guide about your options for sale in general, plus selling a business by an auction is discussed.
How to Advertise Your Business for Sale in 2019
Learn how to plan, prepare and market your business for sale by selecting the most efficient and cost-effective ways and websites for online advertising.
Managing Your Business Sale: How to Qualify Prospective Buyers
Selling your business? This how-to guide addresses the question about qualification of serious buyers as prospects, and the subsequent refinement of these down to a shortlist.
Marketing Your Business for Sale in 2019
Selling a business? Read this article about how businesses with different size and profile are typically marketed and successfully sold.
How Attractive Is Your Business for a Buyer?
When selling your business, get started by thinking yourself into the mind of a potential buyer. What will be at the top of their list of considerations? Read how to prepare your business for a successful sale.
Responding to, and Communicating with Prospective Buyers
Read how to filter prospects from suspects during business sale process. What is effective communication, which information to provide, and when.
Selling a Business - Prevent Making Mistakes
Sellers of their businesses often make common mistakes. Some of the top mistakes can be found in this article.
Managing Your Time - Assessing Potential Buyers in Advance
During the business sale process you are receiving enquiries from potential buyers. However as with so much else in life, it’s the detail that counts.
Using an Auction to Sell a Business
As a small business owner, you can offer your business for sale by auction. Done right, auctions can gain sellers even higher selling price than their minimum asking price. The best part is that the terms of the auction sale are usually more beneficial to you, the seller.
How to Make Your Business Sale Listing Stand Out
These days buyers first look online to identify potential businesses to purchase. It's critical to devote some attention to your listing's content and Landing Page.
Closing the Deal
Tax Considerations When Selling a Business
Here's an insight into tax consequences when selling a business. Asset sale vs stock sale, capital gains tax explained. Learn how much tax you will pay when selling a sole proprietorship, partnership, LLC, or corporation.
10 Tips for Selling a Business With a Lease
As the seller you may want to draft your business lease agreement appropriately so that your buyer takes over all responsibility of the lease and that you do not. Tips for selling a business with a lease provided.
The 6 Legal Steps to Closing Sale of Your Business
The sale of a business involves taking certain legal steps to ensure that the copleting of the transaction is done properly, and with minimum risk for the seller. Find out what those steps are.
Capital Gains Tax Considerations When Selling a Business
When you sell your business, chances are that you will have to pay a capital gains tax. It's a tax on the company’s capital assets that you sell and make money on. Learn how to lower the tax burden.
Selling Your Business with Seller Financing
Learn how seller financing works for an owner selling his/her business. Pros, cons, and risks addressed with owner-funded business for sale transactions. Tax benefits of seller financing.
How to Sell a Business Using Installment Sales
Learn how to sell your business tax-efficiently via installment sales, a common method of seller financing. Special aspects with sole proprietorships, LLC's and corporations are addressed in detail.
A Complete Guide to Selling Business Assets vs Stock Sale
A comprehensive guide to selling business assets vs stock (selling shares). Learn how it works with different types of business. Tax implications, as well as seller interests vs buyer interest, discussed in detail.
Structuring and Financing the Deal
There are many options to be considered when structuring a deal to close the sale of your business. The trick is coming up with a deal that beneļ¬ts both parties and provides incentives for the seller and buyer to sign.
What Information is Required for Due Diligence
Due Diligence is important for both buyer and seller in a business sale transaction. Read this article about what is Due Diligence, and what is required the seller to prepare for it.
10 Top Tips When Negotiating Your Business Sale
This may be the first time to selling your business. You want to be sure that you are covering all your bases before, during and after the negotiations with the buyer.
Letter of Intent to Buy a Business Explained
The Letter of Intent defines what a business sale deal may look like and provides parties (the buyer and seller) some time to perform Due Diligence, and finalize the buy-sell agreement. Also known as Proposal to Buy a Business, or Offer to Purchase a Business.
Asset Sale vs Stock Sale
Businesses are sold through assets or stock (shares) sale. The difference stems from factors such as what type the company is, and tax considerations. To decide, you need to understand the pros and cons with selling assets vs sale of business entity.
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