If you’re thinking about selling your company, you’re probably wondering where to start. Should you sell your company or get help? After all, as a successful entrepreneur, you are used to figuring things out and doing things for yourself. You have seen it all, and you have built your business with blood, sweat and tears. You may be up for the new challenge of selling your company on your own.
While managing sales yourself can be tempting, the job is best left to professionals. OK, I say this as someone whose business is to help people sell their business, but hear me out. For larger companies that are valued at more than $20 million, you may want to hire an investment banker. But for smaller companies, you may want to look for a business broker.
Merchant brokers will be well versed in selling companies. Just like you are great at running your business, they know how to sell the company.
There are many reasons why you should consider hiring an investment banker or business broker. Here are three you should keep in mind.
- Most importantly, advisors have sold many companies before and may have sold to them just like you. They know the sales process and how to negotiate the highest price from buyers. They are also aware of the tricks some buyers use to lower the price. They will know how to avoid falling into such trap. A common strategy is for a buyer to reach the end of the sales process and then announce that your business is no longer worth what was originally offered. They may try to cut the purchase price significantly because they think you will be eager to complete the deal.
- Consultants will know how to value your company and best position the opportunity for buyers. This kind of fairness is tough for entrepreneurs. They may have trouble separating their personal identity from that of business. Although it is necessary. The salesperson of a business needs an objective view of what they are selling and how much it may be worth.
- Just as in selling a home, you want a consultant between you and the buyer. They work as a buffer. It is better for you not to deal directly with the buyer as your emotions need to be under control. If a buyer challenges you about something, you can ask them to take your business elsewhere. A good advisor knows how to avoid these challenges to make them less controversial.
Most advisors are reasonably priced. Usually they will charge a nominal retainer but the bulk of their fee is called a “success” fee. In other words, they don’t make money until there is a successful sale. Their fees can range from 2 percent to 5 percent of the total purchase price, but in many cases the higher the price they negotiate, the more the success more than makes up for the fee.
If you are not careful, some buyers will waste your time. They might want to know your business secrets while pretending to be an interested buyer, only to be put aside before the sale is complete. These same buyers can turn around and compete with you. Good consultants can sniff out buyers who are not serious.
What else can go wrong if you sell your business without a consultant? You may end up leaving money on the table. It could be millions of dollars. Many sellers realize this later and often regret not using the advisor.
Some consultants may sign you up as a client, but then don’t spend enough time marketing your business. They may have more pressing tasks with larger clients. Their team can be expanded and time can be spent on more lucrative deals. To avoid this problem, be sure to ask who will work on your deal and what the timeline is. Once you hire a mentor, put them on their timeline.
Other mistakes usually include being left out of the conversation, because you are unaware of the pitfalls that should be avoided. If you think selling your company is a great way to learn a new skill, be prepared to pay a big price for this lesson. If you are negotiating by buyer in critical areas like working capital, it can easily cost you lakhs.
If you decide to hire a consultant, here are three tips to guide your search.
- Look for a consultant who has completed transactions for companies like you and your industry. Such a consultant will already be familiar with the quirks of your industry as well as the universe of buyers.
- Hire a consultant you will be comfortable working with. You will be with them for six to nine months, which is how long a typical sale would take.
- Determine if your company would be a good prospect for international buyers and if so, hire a consultant who has access to those buyers.
Selling a company is generally a complex undertaking. Buyers tend to be more experienced than sellers, especially when entrepreneurs are selling their first company. When you’re considering a sale, you’ll want to get the best advice from experienced consultants and avoid the mistakes that inexperienced salespeople make.