What is the most efficient way to sell my business?
Too many Business Intermediaries view themselves as representing the buyer or the seller. They think in terms of what is best for the party they think they are representing. In terms of a buy/sell transaction, that is not a true M&A deal, this concept of “what is best for the seller or the buyer” is an in-efficient approach to selling a business. This can create a win-lose atmosphere, when a win-win approach will yield the best outcome.
It is important to understand in Florida, by state statutes, unless you have signed a Single Agency agreement, the Business Intermediary is operating as a Transaction Broker. Which means the Intermediaries do not represent either party. The Intermediary’s obligation is to deal fairly with both the buyer and the seller. There is more to the Transaction Broker agreement that we can discuss later.
A more efficient way of approaching a business sale is to understand that both the buyer and the seller must be satisfied before the transaction will close. To this end, a fair market valuation is what is best for the seller and the buyer. The simple definition of fair market value is the value at which a business will sell when a willing and informed buyer and a willing seller, with neither party under compunction, are in agreement. Another relevant factor to consider is, 85%-90% of business’ listed for sale, never sell. One of the top three reasons attributed to this dismal statistic is, many of those businesses were initially priced inappropriately, too many times based on a rule-of-thumb or a SWAG.
In the pursuit of the most efficient way to sell a business, the Principle of Substitution (POS) must also be considered. The POS simply stated is, no one will pay more for “A” than they would have to pay for an equally acceptable substitute for “A”. In other words, buyers have choices. The value at which a business will sell is strongly correlated to the perceived value by the buyer. For a business to be sale-able, the income from the business must do a minimum of 3 things. It must; (1) pay the buyer a market wage and benefits to operate the business, (2) pay the debt service related to purchasing the business and (3) pay the buyer a reasonable return on invested capital (ROIC). These criteria collectively are known as the acid test. Likely, the majority of the 85%-90% of business that do not sell, could not pass the acid test. Why were they put on the market to start with?
Other key factors that determine whether your business will sell, and positively impact the buyer’s perceived value are; a professional (defensible) valuation based on proven methodology, marketing materials that highlight the true value of the business and having a clear understanding of what is important to the targeted buyer pool identified in the marketing plan. There are several different categories of buyer’s. Each will have a perceived value of your business, based on their reasons for buying a business. For a seller to realize the highest possible value for their business, going to market with consideration of all of these key factors is the most efficient way to sell their business, and ultimately the most profitable way to sell a business.
A Certified Business Intermediary (CBI) will be able to provide; a professional (defensible) valuation, a complete and professionally developed marketing plan that will present your business in its best position, and identify the best targeted buyer pool to market your business to. Selling a business is a complex process and, as the statistics prove, commands an experienced and professionally trained Certified Business Intermediary (CBI).
If you are considering selling your business and would like to discuss the most efficient way to sell your business, please feel free to contact me at your convenience. It will be my pleasure to assist you.