Have you thought about selling your Southwest Florida business? Before you begin the process of selling your company, don’t expect it to be smooth and quick. This isn’t meant to scare you off, but rather prepare you for the fact that getting your business ready to sell can take up to a year. Even after you find a qualified buyer you must also go through a process of negotiations and due diligence, which could take another several months. This is why you should be prepared for the possibility of running your business for another couple of years after making the decision to sell. With that in mind, hiring a qualified business broker will allow you to run your business while they handle the tough task of getting it sold.
Determine Your Goals and Exit Strategy
There are a few common ways to sell your business. The method you choose will be largely dependent on your goals and the type of buyer you are pursuing. For some owners, maximizing the return on their investment is their only goal, or at least the one with the most priority. Others might want to make sure their business is sold to someone who can continue the company legacy, allow them to stay involved in some capacity or keep current employees on board.
A friendly buyout is one method of sale, where the business is sold to an employee, friend, family member or other acquaintance. Some sellers prefer this method because it feels like the business will remain in good hands and there may be less due-diligence, therefore a smoother sale process, since they are familiar with the buyer. However, the seller may end up getting less money from the sale because of their relationship with the buyer.
Some owners may choose to liquidate their business through an asset sale, rather than sell the business as it is. While they don’t have to worry about transferring ownership, their assets alone may get them nowhere near the full value of the company. This strategy may work for those who have a failing business that has valuable equipment. Others may choose to sell shares of the company, rather than sell of the whole thing, a process which could allow them to sell a portion of the company at a time, and potentially have a smoother transition to their departure.
If you just want to earn the highest possible profit from selling your business, selling on the open market is the best strategy. Your buyers can range from new business owners to investors to strategic buyers looking to absorb your company to help benefit their existing business. This method can be very complicated and nuanced. Choosing to work with a business broker can help you avoid a lot of headaches and costly mistakes. They can also assist you in your overall exit strategy and deciding what type of sale to pursue.
Figure Out a Price
Finding the optimal price for your business is the next major step to selling your business. If the business is priced too high, you won’t be able to find enough suitors and if it is priced too low, you may leave money on the table. The best way to determine an appropriate price is to obtain a business valuation. There are many methods of valuing a company and an M&A advisor or business broker is adept at all of them. They know how to find hidden value in your business and calculate a price based on tangible assets, intangible assets, location, industry standards and numerous other factors. They can also figure out how the market values the company based on demand and current economic conditions.
Raising the Business’s Value
Now is the time to comb through your business and see what you can improve upon. Look for ways to increase your company’s performance and reduce expenses. It is important to keep your eyes on growth while you are waiting to find a buyer. Investors look for businesses that have potential or are on an upward swing. A business broker can review your company to discover weaknesses and help you correct them. Their experience can be very valuable when it comes to finding ways to improve.
Prepare Your Financials
Prospective buyers will spend a lot of time reviewing your business’s financial history and documents. Tax savings are usually the primary goal of business owners when preparing financial statements. As a result, they might not be compatible with your goal of selling a business. Business brokers can help resolve this discrepancy by recasting your financials to provide a clear picture of your company’s earning capabilities. Work diligently to organize and clean up your bookkeeping. Failing to have all of the critical documents ready and in order when a buyer asks for them could cause you to lose momentum in a deal. This could in turn cause an otherwise promising sales transaction to fall apart.
Prepare Due Diligence Information
During the process of acquiring a business, a potential buyer will do their due diligence, where they collect all of the information they can about a company. Much like financials, they expect everything to be prepared in advance and organized. Review all of your permits, incorporation documents, contracts, vendor and employee agreements and leases. All of these documents combined make up what is referred to as a ‘data room’. Along with your accounting information, a business broker will use the data room to prepare a summary of your business that will be used to market it to potential buyers.
Target and Qualify Buyers
Finding buyers is one area where you might require the most assistance. Without a business broker, entertaining buyers can take up an enormous amount of time. Many investors are not serious about buying a business when they inquire about it. Often they are just curious, or kicking the tires. Some are not even financially qualified to purchase it. In addition, competitors may come knocking on your door trying to gather up sensitive information about the company or poach your customers. Your business broker can help narrow a large pool of buyers down to a smaller group of qualified potential successors. They have a list of buyer leads who are already looking for businesses and will not share sensitive information about your company until those leads sign a Non-Disclosure Agreement and prove that they meet the financial qualifications.
Negotiate the Sale
Agreeing to amenable terms on the sale of your business goes beyond just the price. Many other considerations need to be negotiated on. This can include which party absorbs certain liabilities, employee agreements, whether or not the seller will assist with financing or signing non-compete agreements. There may also be situations where the seller stays on board in a non-ownership role to help transition the business, either at their own request or the buyer’s. In addition, the transaction might involve real estate, or the retention of certain assets by the seller. Every deal is going to be different and yours will bring it’s own unique elements. Your broker can be a buffer in this situation and handle the brunt of the negotiations based on your desired terms. There is a lot of legal documentation to sort through in this step, so working closely with your attorney is also advisable.
Signing the Purchase Agreement
In the process of pursuing a business, a buyer typically begins with an Indication of Interest (IOI). This conditional, non-binding letter expressing their genuine interest in purchasing the company. It outlines the target valuation and general conditions for completing the deal. Based on the IOI letter, the seller will decide whether to move forward or not. When the seller accepts the buyer and they both agree to move forward, the buyer will sign a Letter of Intent (LOI). This is a more formal step, where they show serious intention to continue their pursuit of acquisition and are given an exclusivity period to evaluate the company. During this time documents providing all of the details of the transaction will be drafted. This is also the stage in which a buyer will do their due diligence. Once the final terms are agreed upon, they will be outlined in the purchase agreement, which will be signed to complete the transaction.
The final stage of the sale process is more of an epitaph that takes place at the end of the transaction. At this point, the deal has closed and you are making yourself available to the new owner, helping them get acclimated with their new business. Often this is something that has already been agreed upon in the negotiation process.
Are you prepared to sell your business from start to finish? Most people find that it is an overwhelming process that they cannot handle on their own. Simultenously playing the role of business owner and broker can make your business suffer and increase the chances of making a costly mistake in the process. If you need assistance with preparing to sell your Southwest Florida business, contact Corporate Investment Business Brokers (CIBB). We can provide you with a free consultation that can help you determine the next best steps.
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