Selling a business is a major decision for any business owner. Not only does a sale signal the end of a period of ownership, but it also opens the door to new opportunities. Unfortunately, a successful closing is not guaranteed, and many sellers never find the right buyer. To get the best outcome from a business sale, it’s important to work with an experienced and professional business broker. The following are seven benefits of working with a business broker to sell your business.
1. Increasing The Value And Sale Price Of Your Business
Sophisticated business brokers know what makes a business desirable to buyers, and they know how to present a business in the best possible light. They can also give useful advice for increasing the value of a business before putting it on the market. A business broker will first research and evaluate the business to see what parts could be functioning more efficiently.
For example, a broker might recommend improvements to an eCommerce website that would make the site easier for customers to navigate. Sellers may also need to upgrade equipment or make improvements to any property they own. If the business is not making a profit, there may be ways to open up new revenue streams. A business broker can help identify the improvements that will lead to a higher sale price.
2. Getting An Expert Business Valuation
Another benefit of working with a business broker is the help brokers provide in determining exactly what a business is worth. Business owners typically think of value in terms of revenue and costs, but an expert business valuation is much more complex. Business brokers consider multiple factors, including DCF (discounted cash flow), EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), SDE (Seller’s Discretionary Earnings), Capitalization of Earnings, Comparable Company Analysis, just to name a few.
Business brokers also valuate each business according to its size and circumstances. For example, DCF approach to valuation is to calculate potential future earnings. This is the right approach if the buyer is likely to keep the business going or expand it. However, if the buyer is more likely to liquidate the business, then a valuation will focus on the business’s assets and liabilities.
3. Finding The Right Prospective Buyers
Effective marketing is the key to a successful sale, and business brokers know how to advertise a business to the right customers. Brokers implement a variety of advertising strategies, but they often begin with their own network of companies, private equity firms, and interested, high-net worth individual buyers. In fact, the best brokers actively maintain a network of firms and individuals who have the financial capacity to purchase a business and the interest in doing so.
Business brokers also know how to present a value proposition that potential buyers will understand and appreciate. They can explain to buyers exactly how buying a business will serve their goals.
4. Keeping The Sale Confidential
Business owners may not want others to know when they’re considering a sale. Rumors of a change in ownership could lead to a loss of business or staffing, which could lower the value of the business. Furthermore, suppliers might look for new customers, a landlord could refuse to renew a lease, and competitors might leak the rumor in order to take away customers.
Professional business brokers protect the privacy of their clients. One way they do this is by writing a description of the business that conceals the business’s identity. Another strategy for protecting confidentiality is to create a buyer profile and work only with potential buyers who match the criteria, which will include both financial capacity and business interests. Finally, business brokers have buyers sign a non-disclosure agreement before revealing the identity of a business for sale.
5. Negotiating The Best Price And Terms
One of the most important benefits of working with a broker is being able to get a fair price for the business. Not only will a broker make sure that the business is valued properly and marketed to the right potential buyers, but they will handle all negotiations with buyers and attorneys. Business owners may not have the time or energy to invest in back-and-forth negotiations. A trusted business broker, however, will represent their client’s best interests and obtain the best possible sale price.
Business brokers use several strategies to get the best possible price and terms for their clients. For one thing, they make sure that the business has value before going to market. They also provide a thorough valuation that will hold up to questioning. When brokers find more than one interested buyer, they can promote a competitive bidding process between them. Finally, experienced brokers know which terms to concede in a contract and which to hold out for. Remember, the terms are often more important than the price. All of these tactics help the seller get a fair and often advantageous price and terms.
6. Taking Care Of Due Diligence
Before a buyer commits to a sale, he or she must do due diligence. That means the buyer, or the buyer’s representative, is going to request a lot of information about the business, including documentation of its assets and liabilities. Requested documentation might include intellectual property licenses, environmental certifications, employee salary and benefit information, financial statements, and equipment lists, to name just a few examples.
The business broker will respond to all of the buyer’s requests, making sure that buyers get the information they need. Collecting all of this data is a time-consuming process, and it’s a big part of the broker’s job. Some brokers even set up a data room for collecting and organizing data so that everything is available when needed.
7. Making Sure The Closing Goes Smoothly
The final step in selling a business is the closing, the moment when ownership of the business transfers from one person or company to another. A business broker will oversee the closing and guide the seller through the process. For first-time sellers especially, a broker can provide a detailed checklist of everything the seller needs to do to close the sale and transfer the business successfully.
As you can see, selling a business requires experience and expertise in navigating a myriad of legal, financial, and personal factors. Business owners who try to do it on their own can end up sacrificing valuable time, especially if the deal never closes. Hiring a business broker to sell your business allows you to focus on the things that are important to you. Working with a broker will also increase your chances of a successful sale. This article covered seven benefits of working with a business broker to sell your business, but there are many more!