Most business brokers sell businesses that are priced at under $1 million. Each of those transactions are important, especially to the owner of the business who might be selling a business that is the result of their life’s work. However, when you move into the larger price range, what’s at stake requires a much different approach. Let’s look at what’s in play during the sale of a larger business.
The seller and buyer are both sophisticated. The seller is usually savvy, having built up an asset of quite considerable value. Similarly, the buyer also knows what they are doing as they have usually built enough assets or wealth to be able to afford a larger purchase and are, on most occasions, financially well educated.
At this level, buyers need to be fully informed about all aspects of the business including financial and non-financial aspects. This will involve the broker preparing a detailed Information Memorandum, which will include history, market research, swot analysis, financial snapshot, details about premises, employees, clientele et cetera.
And sellers at this level need to understand what makes a business valuable and saleable. Profitability of course, but also maintainability and transferability of those profits.
The broker needs to be across all the contract terms, both legal and commercial. A good broker will prepare heads of agreement for both parties to sign off on before the matter goes to legal representatives.
The broker also needs to have a better than average understanding of financial concepts, covering standard profit and loss and balance sheet issues, as well as working capital requirements and buyer finance matters.
The broker needs to be able to step up to the plate and do battle with the highest calibre of accountant and solicitor hired by the buyer. That broker also needs to prepare the business owner for what might be a thorough and testing examination of the business and its financial history. The role of the buyer’s professional representatives here is to find fault, shoot holes and generally disparage the business. The seller and their representatives needs to be up to the task.
Buyer and seller need to understand that it will properly take a bit longer to sell a bigger business than a smaller one. This is due to all the circumstances set out above, but also due to the fact that parties are in no hurry at this end of the business transaction spectrum.
There is a lot more at risk, as professional advisers are expensive at this level and the process can be long and drawn out. Further, the business may not sell and that means that all the money invested in brokerage fees, document preparation, data room and professional expenses on top of your time devoted to the process could be by and large wasted. How can you reduce your exposure to potential loss? Here are a few tips:
- Get a proper valuation of the business done by a business valuer so that you don’t waste your time chasing an unrealistic price
- Engage a broker who understands the M&A process from start to finish and who has a track record In this field
- Be prepared for the business not to sell. This is part of the cost of operating a business
- Understand who you will be pulling out of your business to help in the process. This could be the company accountant, bookkeeper, managers or secretaries. Ensure that that does not cause too much disruption to your business
- Don’t skimp on professional fees. An under-performer will cost you more than you save. Look for recommendation from people who have had a good experience with their adviser
If you have built a strong business, you want to make sure that you can obtain full value when you sell it. If you don’t sell it the first time around, try and learn what went wrong and make sure those mistakes are part of the learning process for next time.
Owner @ BCI Business Brokers, 30 years of experience in selling businesses
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