Business Owners FAQ, Part 2: Potential Buyers

Travis Watters Business Owners FAQ

Over the years we have had a variety of questions posed by business owners. We thought it would be a good idea to put some of the most common questions in one place for easy access. This blog series is a compilation of those common questions. This five part blog should provide a good starting point for most business owners.

Below is Part 2 to the Business Owners FAQ. The following are the other segments of the FAQ in the suggested order of reading:

  1. Part 1 – When Should I Sell My Business
  2. Part 2 – Potential Buyers
  3. Part 3 – True Market Value
  4. Part 4 – The Acquisition Offer
  5. Part 5 – Common Mistake and Conclusion


 

If I decide that I’m ready to consider sale, how do I get started?

The best strategic approach is to plan the process, gather information, and carefully design the roles of your key facilitators before you talk with any potential buyers. Unfortunately, this is not often what happens.

The average business owner, who has decided to sell, begins by chatting with callers expressing interest in purchase. Several dangers are inherent in such discussions.

How far can this conversation be taken before obtaining a signed nondisclosure agreement? If such prospective p buyer is a competitor, or a representative of a competitor, what prevents that competitor from having an excited conversation with the sales management team: “Guess who we are talking with about an acquisition?” From this point, it is a short hop to the seller’s customers and employees.

At the very earliest stages of communication, it should be made clear that conversations should be kept highly confidential, and that the seller will require a signed nondisclosure. A signed copy should be obtained and filed before any conversations proceed beyond the barest expression of possible interest in talking further.

How can I control confidentiality as I begin to give potential buyers more information?

As discussions proceed, confidentiality issues become more complex and nearly impossible to manage single-handedly. Potential buyers are usually careful with confidentiality if their responsibility is clear. However, as discussions progress, it becomes increasingly difficult for the seller to maintain confidentiality due to a variety of nonstandard activities which are naturally required as the selling process continues.

If the seller is an active on-premise owner, long phone calls from people who typically are not spoken to can raise eyebrows, particularly if the owner feels the need to close his door for privacy during such conversations. Information, which is not usually requested, may be required for potential buyers and yet asking staff for such information may attract serious attention and curiosity.

Help in these areas can be obtained from a trained intermediary who routinely represents sellers. Professional investment banking firms are available to assist in the sales process. This service does have a cost. Typically that cost ranges from 2 to 10 percent of the total proceeds depending on the size of the transaction. The figure can go as high as 10 percent for a transaction of $2 million or less, or it could drop as low as 2 percent if the transaction is more than $25 million. The fees for intermediaries are usually contingent on a successful sale. The properly chosen investment bank will typically earn several times their fee in increased transaction value.




Continue reading onto Part 3 to learn more about True Market Value, or skip to Part 4 (The Acquisition Offer) or Part 5 (The Most Common Mistake and Conclusions). You can also go back to Part 1 (When Should I Sell My Business?). Please feel free to contact us directly if you have any questions or if you are interested in exploring a possible sale of your business. You can also learn more by requested one of our publications. In particular, our book “The Practical Guide to Selling Your Business” and the article “Uni’s 12 Value Drivers to Increase Corporate Valuations” are very valuable to business owners interested in learning more about selling their business. We hope to hear from you soon.

Travis WattersBusiness Owners FAQ, Part 2: Potential Buyers