subject: How to Sell Your Business without Losing Your Mind and a Ton of Money [print this page] Curiosity killed the cat, as the old saying goes. But business owners, who want to sell their businesses, must avoid the curiosity seekers, or risk becoming the cat that gets killed. For that reason, confidentiality becomes a key ingredient in any business sale transaction.
Why is confidentiality so important? Let's examine a few scenarios that could play out if the marketing of a company was not kept quiet:
Customers may switch to your competitors. Usually that is because customersdon't like change. If there is going to be any changes made, your customersmay wantto be the ones making that decision. Or maybe they've only remained customers because of personal friendships maintained with the current business ownership. Sometimes customers are worried that the "chemistry" won't be right with a new owner, so they begin looking for a new supplier. And, don't forget that your competitors have probably been calling on your customers for some time, and this might just seem like the time to make a change.
Competitors can use the knowledge to a seller's disadvantage. They can contact your customers/clients and woo them with special deals and discounts. Worse, some competitors may spread information about your company that may not be true, all to put your company in a bad light with the community and your customer base.
Employees don't like to worry about the unknown. They worry about their jobs, pay scale, status within the company and most of all...they worry about change. Some employees want to be in control of their own destinies and will actually begin looking for work elsewhere; sometimes with your competitors.
Vendors may get wind of the potential sale of your company and begin to worry about your credit, and the credit of a new owner. Some vendors, upon learning that a customer's business is for sale, have been known to put their customers on COD with no advance warning.
There are many other issues that I could add, but I'm sure you get the picture.
How does a business owner sell a business without opening Pandora's Box? The best way is to engage an experienced professional business intermediary.
I am often asked exactly how we can market a company, and still keep the sale confidential? While I'm not going to share our proprietary professional techniques, I can provide you with the following overview of the process:
Advertising and making direct contacts with known investors and buyers are all done with "blind" teasers about the selling company. We accentuate the positive virtues of the company without identifying the name or exact location of the business.
Non Disclosure/Confidentiality Agreements must be signed and dated by potential acquirers. We require them to execute our own stringent agreements; if the candidate balks at signing our agreement, then the buyer just wasn't that interested. Plenty of qualified buyers will--and do sign rather stringent confidentiality agreements.
Financial Ability of the Buyer is requested. Individual buyers are required to submit a personal financial statement (which we initially hold in confidence). The Buyer must realize that we are only willing to share identification and confidential information about the Seller with financially capable candidates. Non individual Buyers are asked to provide company financial information or banking references that will provide some indication of financial ability to acquire a target company. If an individual or corporate Buyer does not wish to share their information, they will not learn the identity of the Seller. Qualified and experienced Buyers know "the drill" and if they are serious buyers, they will provide the requested information.
Controlling contact with the Seller. Once a Buyer has been pre-screened and determined to be worthy acquirers, the Buyer is not given direct access to the seller. The business seller should be busy operating the company just as they would if the business were not for sale. Disrupting normal business operations would be costly, and the seller can't be bothered at a Buyer's whim. The intermediary "fields' all pre-offer questions, obtains the seller's answers and communicates with the Buyer. The intermediary will coordinate phone conferences and physical meetings between the Seller and the Buyer.
Controlling and monitoring due diligence of the Buyer. Some buyers will run wild with due diligence. This can cost the Seller time, money, and frustration. I always advise Sellers that due diligence can be like having your tonsils examined...by a proctologist! Some Buyers will want to do a bottom to top complete due diligence of the Seller's company before indicating a general price range and terms. I suggest breaking the Buyer's due diligence process into two parts: general and financial pre-offer diligence and then post offer detailed diligence. Without breaking the process into two parts, what often happens is that the Buyer spends time and money digging into every little corner...and then making an offer that would never be accepted by the Seller. The better way is to do general and financial due diligence first, and have the Buyer make a "contingent" purchase offer or contingent LOI. The price and terms to be contingent upon the findings in part II of the process. This approach can save both Buyer and Seller time, money and headaches.
Keeping emotions in check is a very important aspect of the professional intermediary's job. Selling and buying a business can be mentally and emotionally challenging. If the Buyer or Seller is going to have a meltdown, it is best done with the intermediary and not the people sitting on the other side of the bargaining table!
Keep the Buyer's financing on track for a target closing date. As a business intermediary working for the Seller, it is important to keep in mind that if the financing doesn't go through, the deal can collapse. So, we spend a good deal of time working with the Buyer and Buyer's lender to see that the train doesn't slip off the track.
Assist in coordination of the closing process. It is imperative to coordinate between the CPAs, lawyers, lender's, appraisers and the Buyer and Seller. The business intermediary keeps information flowing and the lines of communication open in order to conclude the sale transaction successfully.
When you are ready to sell your business you can save your mind and protect the value of your business by engaging the services of an experienced professional business intermediary. For more information, go to www.gruttercpas.com and www.lulu.com/businessadvisor.
How to Sell Your Business without Losing Your Mind and a Ton of Money
By: Grover Rutter CPA ABV CVA CBI
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