How to Sell a Business Quickly
Originally posted on https://www.synergybb.com/how-to-sell-a-business-quickly/
The average business takes 6 to 10 months to sell. But every year we sell some companies in only a couple of months, and some businesses take a year or more to sell. If you were wondering how to sell a business quickly, we are going to examine some of the factors that lead to one business selling faster than another. Hopefully, this will help you in determining how you can contribute to selling your business quickly.
MOTIVATION TO SELL YOUR BUSINESS
One thing that businesses that sell quickly have in common is a motivated seller. There must be a good reason to sell even to start the process. The most common reason for selling a profitable business is that the owner wants to retire. They have usually built up a great company over many years. Now they are either in their 60s or 70s (sometimes 50s) and are ready to retire. They may want to spend more time with their grandchildren, travel, relocate, or just take time off.
In some cases, they want to work at something else. In most cases, they will have to provide some transition period and understand that it won’t be sold in a couple of weeks. So they are eager to begin the sales process.
THE RIGHT BUSINESS BROKER TO SELL YOUR BUSINESS QUICKLY
An important factor in determining whether a company will sell quickly is having the right match between the business that you own and the Business Broker or M&A firm that you hire. You want to have a Business Broker or M&A firm that has experience selling the type of business that you own.
For example, we specialize in selling businesses in construction, manufacturing, technology, healthcare, services, distribution, engineering, education, and transportation. An advantage of having a Business Brokerage that has experience selling a business in your industry is that we already have potential buyers for companies in these industries. Also, we know the language of companies in these industries which helps us in marketing the business and speaking with potential buyers. This is why we decided to specialize in specific industries. We don’t sell Restaurants, Gas Stations, Convenience stores, etc. so you would not want to select us if you are interested in selling this type of business. You would want a broker that focuses on these types of companies.
Another consideration is to select a Business Broker that sells businesses of a similar size as your business. We sell businesses with annual revenues of $600,000 to $40 Million+. If your business is smaller than this, you should contact other business brokers that handle smaller businesses.
You should also work with a Business Broker that you have good communication with. This is important in having the business sale process go quickly and smoothly. There is a lot of information that needs to be exchanged, and a good relationship helps to speed the exchange of ideas and information about the business. It also makes the process more enjoyable to work with someone that you have good chemistry with. For more on selecting the right broker, you can read our article on Choosing the Right Business Broker.
PROVIDING INITIAL INFORMATION ABOUT YOUR BUSINESS
To sell your business, a Business Broker or M&A firm will need to gather information about your business. Initially, this information is typically in the form of a confidential conversation about your business such as what products and/or services you sell. What type of customers, suppliers, and employees you have? What are your strengths and weaknesses?
Next, we’ll discuss an overview of what your annual revenue is and your approximate owner’s net income. To get more detailed we’ll need the last three years tax returns and a current year to date profit and loss statement if it is well into the current year. With your assistance, we’ll want to identify all of your perks and benefits so that we can give buyers a complete picture of your overall compensation. We’ll use this information to provide you with a potential selling price.
PRICING A BUSINESS TO SELL QUICKLY
Some owners are not in a rush to sell, and that’s OK. But if you want to sell quickly, it pays to price the business so that it will get potential buyers attention. This doesn’t mean pricing it super low because, let’s face it, even if you want to sell quickly you don’t want to leave money on the table. Neither do we. We get paid on a commission basis, so we’d also like to maximize our commission. Besides, it’s never good to be desperate. So, what does pricing a business to sell quickly mean?
The first step is to get a business valuation from an experienced Business Broker or M&A firm that has sold businesses like yours. Many factors go into pricing a business. Of course, part if it is how much money you are making otherwise referred to as Net Cash Flow. This includes your salary and perks and benefits that you get from the business in addition to the net income or profit of the company. Some other factors are whether your income is going up or down and what industry you are in. For more on this you can read: How much is my business worth?
But for illustration purposes, let’s take an example of a service business that has an annual net cash flow below $500,000. They will typically sell for approximately 2 to 3 X your net yearly cash flow. For example, if your net annual cash is $400,000 then typically a service business will sell for $800,000 to $1.2 Million. So when pricing a company, you don’t want to price it below this range unless there are other factors such as the whole business revolving around you as the owner. But depending on other factors, you may want to price it in the lower half of this range say 2 to 2.5X annual net cash flow. This will be low enough to get potential buyers interested but not so little that you are leaving money on the table.
Another example would be a software company with an annual net cash flow of $3 Million. For this company, the price range might be 4-9 X net income so pricing the business somewhere between $12 to $15 Million would be an aggressive pricing strategy.
Sometimes pricing a business aggressively works to your advantage in getting multiple bids and selling the business for over the asking price. Also having multiple bidders usually leads to buyers moving quickly so that someone else doesn’t get the chance to buy the company before they do. Let’s face it, its human nature to want something that other people want and pricing a business aggressively generally leads to competition for your business.
We have a database of 24,000 potential buyers and a comprehensive marketing plan, so in most cases, we can introduce at least one or more qualified and interested potential buyers within the first 1 to 8 weeks of our assignment. If one of our clients hasn’t had any potential buyers within that time, we generally recommend a price decrease if they are motivated to sell their business quickly.
WORKING TOGETHER TO SELL YOUR BUSINESS QUICKLY
We’re experts in selling businesses but you are an expert in your specific industry so working together leads to the best results. Before we begin marketing the company, you can tell us what makes your business unique. We’ll exchange ideas for positioning the business to attract the right potential buyers. You might also have ideas on specific buyers to target or ones that you don’t want to work with. And we like to hear your views on how a new buyer could improve what you have.
We’ll do a lot of qualifying of buyers, but once we have a buyer that is both qualified and interested, we’ll make an introduction to you. Then you can do your part to discuss the details of your business and answer any questions that the buyer might have. We’ll coach you, to be honest, and open but at the same time be optimistic and easy to work with you. You can tell them all about the great things that your business has to offer. It’s best to discuss the weaknesses as an opportunity for the buyer to bring the company to the next level. Keep in mind that every buyer that we introduce to you will have already signed a confidentiality agreement and provided us with information on their qualifications so that you can discuss your business in confidence.
NEGOTIATING OFFERS FOR YOUR BUSINESS
After you have met with one or more buyers and answered their initial questions the next step would be for buyers to make an offer for your business. This usually takes the form of a letter of intent (LOI) which outlines the price and terms of the offer. This is typically a one to five-page document that we can help the buyer with drafting. The goal is to get multiple offers, and we will help you to understand the difference in the proposals and the buyers. We’ll discuss which ones are most likely to move quickly and which buyers are most likely to close on the business. We’ll identify what things should be negotiated in the offers including the price and terms and how much time they want to take for due diligence as well as what amount of information they will require.
Working together, it’s important to provide all of the required information to the buyer as soon as possible. Having your accountant readily available to give the details is an integral part of selling your business quickly. We’ll help to discuss due diligence issues that might come up such as whether what is being asked is normal or beyond the scope of what is typically done in due diligence. We can also set up private data rooms to exchange information and can provide recommendations on an accountant if your accountant is too busy with other things.
FINANCING IS A FACTOR IN HOW QUICKLY A BUSINESS IS SOLD
There are a few different types of financing for the purchase of a business.
1. The first scenario is with a buyer that has his owns funds for the purchase of a business. In terms of a quick sale, this is the most preferable. But just because the buyer has the funds available doesn’t mean they want to use all of these funds to purchase your business and they may not make an acceptable offer. If not then there are some other ways to finance the sale of a business.
2. Another method is through seller financing where the seller provides some of the funding by allowing the buyer to pay for part of the purchase price over time. Seller financing can vary from 10% to 75% of the purchase price of the business. Most sellers would prefer not to provide seller financing and to minimize the amount of funding. However, seller financing does lead to a faster sale than if the buyer needs to get bank financing for the purchase of the business.
3. For bank financing, we have relationships with banks that can provide funding. With bank financing, the seller often gets 90% to 95% of the purchase price paid at the closing. In many cases the bank will want the seller to have some skin in the game by providing some 5 to 10% of the purchase price in financing or at a minimum at least have some money held in escrow for 30 to 90 days to make sure that the seller does his part to provide a transition to the buyer. Banks also have a say in dictating the terms of the purchase agreement and the will do their own due diligence which needs to be completed before the sale can be finalized. Banks try to move quickly, but the reality is that having a 3rd party in the transaction does slow it down some.
4. Private Equity Groups. There are different types of private equity funds. Some are self-funded meaning they already have the funds available. This is preferable and leads to a faster closing. There are also search funds. These funds look for good business and then once they find one they need to get investor approval before a deal can be closed. This additional layer of approval can slow a deal down this type of buyer is not usually the first choice. Some sellers consider offers from search funds if they don’t have an acceptable offer from other buyers and/or the offer is good, and they are willing to wait to see if the search fund can get investor approval.
We have sold businesses with all different methods of financing. Every deal is different, so we work with each seller to explain the pluses and minuses of each offer and scenario that is presented to them including the financing proposed. This way you can weigh the pluses and minuses of each proposal in terms of speed and likelihood of a deal being closed, the amount of total purchase price, and the amount paid at the closing. You may also have your own opinion on who you like better personally to take over your business so together we can help you to make the best overall decision.
NEGOTIATING THE PURCHASE AGREEMENT
The offer letter (LOI) will have the basic price and terms of the deal, but you will need a more substantial contract to complete the sale of your business. The purchase agreement can be 50 to 100 pages or more.
Sometimes the purchase agreement is negotiated while due diligence is taking place and sometimes this will be done after due diligence is completed or mostly finished. There are advantages and disadvantages to either scenario. If you wait until after due diligence is completed to negotiate the purchase and sale agreement, then you and the buyer won’t incur any legal costs if something is uncovered in due diligence that causes the deal to fall apart. The advantage of getting the lawyers involved to negotiate the purchase agreement while due diligence is beginning is that with a concurrent process, of course, things move more quickly and you don’t have to wait until due diligence is completed. Most of the time, some of the due diligence is completed before the negotiating of the purchase agreement.
If you want to sell your business fast, it is helpful to have a lawyer that has experience in negotiating business sale transactions. If your lawyer does not have this experience, we have lawyers that we can recommend who can move things forward in a timely fashion. It’s no secret that lawyers can slow a deal down or kill the deal. Many small issues need to be negotiated, and you don’t want a minor issue to slow down or unravel your deal. Since we’ve been involved in hundreds of deals we’ve seen the same or similar issues that come up. We’ll work with you to try to bridge the gap between attorneys when necessary and keep a deal moving forward.
CLOSING THE DEAL IN A TIMELY FASHION
Our Business Brokers keep the deal moving forward by answering questions and keeping communication flowing to overcome any obstacles that come up. It helps when the attorneys and accountants are available and responsive. If they can’t resolve any issues, we’ll set up a conversation between buyer and seller to work towards move things forward.
CONTACT SYNERGY BUSINESS BROKERS TO SELL YOUR BUSINESS QUICKLY
Not all of our assignments result in a quick sale, but that is our goal with every assignment that we take on. Particularly when the seller is motivated to get their business sold fast. Hopefully, we’ve answered a lot of your questions about how to sell a business quickly. Every business is unique. We offer a confidential consultation to discuss your goals and outline a strategy to help you meet them. To get started, please fill out our online seller contact form or call (888) 750-5950. We sell profitable businesses in the industries that we specialize in, throughout the Northeast, the Mid-Atlantic, the South, the Midwest, and selectively worldwide. To start to get to know us, you can watch our corporate videos.