When it’s time to sell a business, many business owners attempt to do it on their own. This is usually due to the common misconception that it is both easier and cheaper than getting help from an M&A advisor such as a business broker. When they do, a common strategy is to reach out to a single buyer and entertain one a time. Putting all your hope in one will usually result in missed opportunities, failed deals, and falling short of your highest potential profit from the sale.
Setting Yourself Up for Failure
Some sellers will forgo selling for years because they believe that they already have an interested buyer. Maybe they’ve engaged in several casual conversations over a long period of time that have led them to believe that that have a firm exit plan in place. The seller just assumes that they’ll just be able to sell when they are ready. When the time comes to sell, their prospective buyer is no longer interested. The truth is, if they were really interested in the business, they would have already made a serious attempt to purchase it.
Other sellers think they can just reach out to a competitor when they are ready and try to convince another business owner that it makes sense to buy theirs. The truth is that when you cold-call other businesses, you usually catch the targeted buyer off guard. Even if they do show interest, they are often unprepared to make the purchase, which makes the process of selling messy and slow.
Some sellers also stop looking at additional potential buyers once they get their first prospect. The problem is that most prospects never become buyers, even if they look really promising at first. Falling in love with the first prospect you find will set you up for failure. Statistically speaking, more often than not, the first interested buyer won’t buy the business. A large percentage of qualified buyers consider multiple businesses and could easily end up going for another one and leave you hanging out to dry. This will also give them the edge in negotiations. If they do show serious interest in your business, but you do not negotiate on their terms, they will have other options available to them.
If a potential buyer becomes aware of the fact that they are your only prospect, they will have all of the leverage in negotiating. If the buyer is a competitor and you have already shared sensitive financial data about your business, there will be added pressure for you to close the deal. If you don’t, the competition now has insight into sensitive details about your business.
When you decide to work with one buyer, you hope that no one else will find out that you are selling your business. If employees find out, they may get nervous about losing their jobs, or refuse to work with a new owner and start looking for new jobs. If customers find out, they may become uneasy about the continuity of your business and wonder if they can depend on you in the future. Not all competitors are malicious, but you are taking on a risk you take on when you reach out to one to see if they could be a potential buyer. There are buyers out there who will pretend to be interested just to see if they can get insight into your business that could potentially give them an advantage.
Working with an experienced M&A advisor, such as a business broker, helps to minimize the risk of confidentiality breaches. Brokers employ strategies in confidential marketing that they use to attract buyers without divulging the identity of the target business. They have lists of qualified buyers who are already looking for businesses to buy. Also, experienced brokers know when it is safe to share information with potential buyers so sensitive data does not get out too early in the process.
When sellers decide to work with only one buyer, they think they can get by without having to pay a big commission to an M&A advisor. The truth is that the fees paid to an M&A advisor typically pay for themselves, and then some. If you decide to sell on your own, at some point during the sale process you will still have to pay attorney fees, which could end up costing more than the broker commission you would have paid. There are also hidden costs in trying to sell on your own. By dividing your time between the sale process and running your company, you risk falling short of profit goals by spreading yourself too thin. Business brokers are also experts at valuing businesses. They will make sure your business isn’t underpriced, so you are not leaving thousands of dollars on the table.
The most significant consequence of selling on your own and not using an M&A advisor is the lack of competitive tension. Working with only one buyer dramatically reduces your negotiating power, which can be much more costly than having to pay a broker’s commission.
The key to selling sooner and for the best possible price is to have multiple prospective buyers. Until you have a written commitment from a buyer, you need to keep entertaining other buyers and looking for new prospects. You only get one shot at selling your business, so do not look for cheap and easy ways to do it. By using proven strategies and hiring the right advisor, you will put yourself in the best position to have a successful sale.
If you are considering the sale of a business you own, think carefully about how you can put yourself in the best possible position to succeed at every step of the sale process. At Corporate Investment Business Brokers (CIBB), we have an honest and supportive approach that differs from most brokers. Consider utilizing our extensive experience and expertise to help prepare you for the sale and get you through it while reaching your profit potential. Our process begins with a free, no-obligation business valuation and consultation. Contact us to get started.
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