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Selling A Business – A Perfect Example Of How To Get The Best Possible Price

By on August 29, 2012 in ACROSS THE WEB - The Best Advice/Info About Selling Your Business From The Internet, Dealing With The Buyer

 

Here is a unique article describing the ups and downs of putting the sale of a business together. It’s an email a seller wrote to his adviser documenting each of the events and upheavals that took place during the final week of the sale. Certainly no sale is easy or a completely smooth process. But what stood out to me is this: the seller had two buyers, each bidding against each other and thereby constantly driving up the ultimate price. This article perfectly demonstrates the advantage of having two buyers compete with each other instead of with you. If there is one thing that will get you the highest possible price it is finding a second, third and even a fourth viable prospect.  As we see in this article, the seller was continually surprised by the offers each buyer made. You never know if a buyer will up their offer, drop out of the sale or buy some other business. You can never rely on just one prospect because you never know what they are going to do. When you have one really good candidate to buy your business, the best thing you can do at that point is find a second prospect. Nothing will increase the motivation of the buyer and the speed with which they act then the existence of a second buyer – their competitor.

Here’s the article: http://www.exitplanninghelp.com/a-week-in-the-life-of-an-exiting-owner

 

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Sell Your Business Tip #10 Business Buyers Place A Lot Of Value On Training

By on August 27, 2012 in Dealing With The Buyer, HOW TO SELL A BUSINESS

 

Most first time business buyers are first time buyers – at least when it comes to small owner-managed businesses. One way you can make your business more appealing to them is to offer a reasonable amount of training after the sale and possibly some free consultations after the training period.

As we have discussed here often, lowering the buyer’s perceived risk is a major key to making your business stand out. And since most prospects you deal with will be first time business owners, they will probably value the training more than you think.

Even if the business is a fairly simple one to run, to the buyer it will seem very complicated until they actually get involved on a daily basis.

So even if you can’t wait to get out of your business, you will be well served to offer a month or even just 2 weeks of training. Mention that in all your advertising. Treat it like a major selling point, because for some buyers it will be. For other buyers it may not be that big of a deal – but so what? In no cases will it hurt you to offer to stay around for a few weeks to ease the transition.

Two things to always keep in mind: buyers will always being comparing your business to the others that are for sale and they will always be looking to lower their risk. Offering training and consultation after the sale can only help you in both of these areas.

 

 

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Questions That Buyers Will Ask You When You Sell Your Business

By on August 24, 2012 in Dealing With The Buyer, HOW TO SELL A BUSINESS

The other day I gave 11 questions that you may want to ask a potential buyer of your business when you first speak to them. By being assertive and asking questions you will be able to direct the conversation to your advantage.

In fairness, you will have to answer a few questions from the prospect. After all, he won’t take the time to move ahead without any information.

But before you do answer any of their questions about your buisness, explain the absolute necessity of confidentiality, tell them you have prepared a Selling Memorandum which they are welcome to read after signing the NDA. But you can give some general answers to the most obvious questions.

Here are some questions you should be prepared to answer when you first talk with your prospect:

1.) Why are you selling?

2.) What is your price? Will you finance? What down payment are you looking for?

3.) How long has this business been in existence?

4.) How long have you been the owner?

5.) Will you stay on for a training period? / Will you be available after the sale for consultations?

6.) How much income can a new owner expect in the first year?

7.) What are the opportunities for growth? / Why is this business unique or special?

Much of this information will have already been provided in your advertisement, but if you are talking to a buyer who was referred by your account, lawyer or some other source, this may be new information to them. Still you should try to answer these most basic questions without divulging any confidential information.

Question #1 is perhaps the most important question. A lot of the advice buyers read and hear tells them to be skeptical of an owner’s reasons for selling. After all, why would anybody want to sell a thriving business?

Buyers don’t have the right to know all the details about personal issues like health or a divorce, but you do need to have some prepared response to this question (health, retirement, pursuing new opportunities) that sounds reasonable and positive.

Hopefully question #7 will be the focus of the entire conversation. If you haven’t already done so, take some time right now to list some of the positives about your business.

Taking The Next Step

After answering a couple of questions, try to get an e-mail address or fax number where you can send the confidentiality agreement and your “Buyer Information Sheet”. (For an example of this form, click here for the Business Buyer Registration Form we use at here at TheBizSeller.com)Let them know that once you have received these forms, you will send them your Selling Memorandum with more detailed information.

Any viable, professional and reasonable candidate should be perfectly agreeable with this process.

Anyone who wants you to give them detailed and personal information about your business without signing a confidentiality agreement is being unreasonable.

If they are unreasonable now, they will be that way throughout the entire process.

You can save yourself a lot of time and frustration by cutting them loose right now.

One Other Piece Of Advice

In all your phone conversations take notes. Your prospects will give you clues on how to sell them – if you get them talking about their goals and priorities.

It may be weeks before you actually meet in person and you’ll forget too much valuable information in the interim if you don’t take notes.

Notes about what?

Their goals, their aspirations, their experience, the names of their spouse and children, why they want to own their own business, those aspects of your business that most interested them etc. etc.

The selling process begins the moment you first speak with your prospect. Start to learn as much about them and what makes them tick as you can. It will pay dividends as you move into the negotiating phase of the sale.

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Business Buyers: How To Find Out If They Are Qualified To Buy Your Company

By on August 22, 2012 in Dealing With The Buyer, HOW TO SELL A BUSINESS

 

I’ve written a lot on this blog and on our site about how to write a good business for advertisement. But the more important step is: how you handle a prospect once you get a response to your ad.

Whether you post a phone number or e-mail address in the ad or you received a Business Buyer Registration Form from TheBizSeller.com, – your first meaningful discussion, and you first opportunity to qualify the small business buyer will usually be by phone.

 

The main objective of this initial phone conversation is for you to learn as much as possible about your prospect so that you can determine if it’s worth your time to actually to take the next two steps.

Those two steps by the way, are:

1.) Have the prospect sign a Confidentiality Agreement (also call a
Nondisclosure Agreement or NDA).

2.) Present the buyer with your Selling Memorandum.

But you will only proceed with these steps if you like what you hear during your initial contact with the buyer.

How To Control Your Initial Contact With The Buyer

As mentioned often on this site, qualified prospects will have many business opportunities to choose from. They’re busy people. Realize that a good prospect will try to pre-qualify you over the phone just as you are doing to him.

To get control of the conversation you need to be the one who is asking the questions.

If you allow yourself to be used like a reference librarian, the prospect will ask a long list of questions, getting as much detail as he can about you and your business. Many times this will lead to your confidentiality being compromised.

When a prospect asks a question, acknowledge it, give a brief answer and immediately ask a question of him.

If they insist on knowing specific numbers about profits and expenses or information about customers, let them know that you are not comfortable giving out that information just yet, but you do have a Selling Memorandum that you will send once you receive a Confidentiality Agreement.

An experienced and professional business person will understand and accept this request.

If you allow them to, prospects will just ask a list of questions until they have all the information they want. When this happens the prospect often loses interest or finds more reasons not to proceed than they do to go forward.

Remember: the person asking the questions is the one who is in control of the conversation. So, here is a list of some of the questions you’ll want to ask a potential buyer in that initial phone conversation:

1.) Tell me about your business background and experience
.
1A.) Why are you interested in owning this type of business?

2.) How much research have you done on the industry?

3.) How long have you been considering a business of your this type?

4.) What is your time frame for actually buying?

5.) Are you currently employed or unemployed?

6.) Have you ever been in business for yourself? If so, why did you get out of that business?

7.) Do you have a partner or spouse who will be involved in the buying decision? (If they have a spouse, try to get them involved as much as possible. If you meet the buyer in person, do everything you can to get him or her to bring their spouse/business partner/investor. Later on, when they are making their final decision, you want to have all these people well informed.)

8.) Do you have at least xx amount of cash available to invest now? (having enough for the down payment isn’t enough. The buyer will also need enough money to cover closing costs, working capital and reserves. So add your best estimate for these things to your down payment and make sure the buyer has it, or at least can come close)
9.) In the first year, how much profit will you need to take out of the business to live on? (you will have a good idea of what is realistic, if the prospect needs a lot more profit to live on than the business can generate than you know you don’t have a good prospect)

10.) Have you seen your credit report recently? Is there anything negative on it? (Don’t ask the more general question “Do you have good credit?” People will answer that question “yes” no matter what the truth is)

11.) If we come to an agreement on price and terms I’m sure you’ll do a thorough due diligence investigation of my company. Likewise, when the time comes, I’ll want to check your credit, work and character references. Is that O.K. with you?

With these last two questions what they say is as important as how they say it. Nervous or noncommittal responses can mean they are not prepared or have something to hide.

Questions 1-3 are open-ended questions that will get prospects talking about themselves. Let them talk. You never know what you’ll learn about their major motivations and their level of preparation.

Tomorrow I’ll give you 9 questions that you should be prepared to answer from the buyer.

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What Goes Into The Sale Price Of Your Business

By on August 22, 2012 in ACROSS THE WEB - The Best Advice/Info About Selling Your Business From The Internet, Business Valuation

 

Here is a good article that deals with the reality of business valuation. Consultant Greg Caruso says that sellers need to realize that the value of their business is tied to what the market will bear, not the amount of blood, sweat and tears they have invested over the years. How many qualified buyers you have and the reason for their interest in your business is key to determining what the market will bear. Another good point discussed is that cash flow, not revenues is what is most important to buyers. If buyers have refused to pay your asking price and you are confused as to why, this is a good article for you to read.

 

Here’s The Link: http://www.nfib.com/business-resources/business-resources-item?cmsid=51590

 

 

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Sell Your Business Tip #4 – Lower The Buyer’s Perceived Risk

By on August 16, 2012 in HOW TO SELL A BUSINESS, Tips & Advice

 

The concept we want to cover in this tip is the idea that Business Buyers Hate Risk. All buyers, by their nature, are always on the lookout for the worst case scenario. It’s not overstating things to say that buyers are paranoid to a certain degree. So, the more you can do to lower the level of risk they perceive within your business, the easier it will be for you to sell the business.

The less risk the buyer perceives, the higher a selling price you will get, and the more risk the buyer perceives the lower a selling price you will be able to get.

The biggest red flag in the buyer’s mind when it comes to their assessment of how risky your business would be to own is any legal issues or contingent liabilities that you are facing. “Contingent Liabilities” simply means any expenses or obligations that may come due in the future.  Not just pending lawsuits but any issues you have with a government agency. Also, any warranty obligations you’ve made to customers, pension fund claims, insurance claims or unresolved disputes with customers.

Whatever time and expense is needed to settle or correct these things will be much less than the “worst case scenarios” dreamed up by the buyer.

Also, remember, you are competing with other businesses that are for sale for this buyer’s commitment and money. Buyers will always be comparing your business to the others that are for sale and outstanding legal issues and contingent liabilities will always make your business look less attractive and harder to sell. So again, if you have any of these types of issues hanging over your head, invest the time and money needed to resolve them now – it will make it much easier for you to sell your business.

Or to put it another way: it will make it much easier for a buyer to choose your business over some other business that is also for sale.

 

 

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The Business Buyers First Visit To Your Location PART 2

By on July 31, 2012 in Dealing With The Buyer, HOW TO SELL A BUSINESS

Yesterday we talked about preparing for that first visit to your business from the buyer. Today we will go into the details of the actual meeting itself.

Warm up

When you and your prospect first meet do not jump right into business talk.

Spend a few minutes getting to know each other. Attempt to build a little rapport.

A few personal questions (but not too personal) such as, Where are you from? Where did you go to school? Do you have any kids? These are a good way to get people talking about themselves.

If the prospect wants to go into some detail about his children or his hobby – let him. It’s a good way for him to relax and get comfortable in new surroundings.

Sometimes the best topic of conversation early on is to talk about his career and what type of work he is doing now. If he isperfectly happy with were he is in his job and career, he wouldn’t’ be sitting in your office. What does he dislike about his current job/business? Why is he looking to make a change? What benefits does he want his new business to provide?

These questions can give you insight into what he wants – his hot buttons. Try to tailor your presentation of your business to his likes, dislikes, hopes and dreams. Try to show him, if it’s true, how owning your business can fulfill those hopes and dreams. (On a side note: it’s a good idea to use words like “own” and “owning” instead of “buy” and “buying” whenever possible)

Though buying a business involves a lot of cold hard numbers it is still a very emotional event to the buyer. This may be something he has dreamed of doing his entire life. Think back to the time you first went into business for yourself. That mix of excitement and fear is the same thing your buyer is feeling. If you can get the prospect emotionally involved in the business, your job of selling will be much easier.

If you are in a manufacturing or wholesaling business you may want to set up a display of some of your most popular productsand demonstrate their use for the buyer.

During this early “warm up” process you may want to share some information about yourself. Talk a little bit about your family. Why did you get in this business? If you’re retiring, what are looking forward to doing the most once you have the time? People like buying from people they like.

Studies have shown that as little as 5 minutes of schmoozing/small talk at the start, can have a dramatic effect on the success rate of a sales presentation or negotiation.

If your prospect isn’t very talkative or seems uncomfortable at the start of this warm-up process you obviously don’t want to force the issue. Use your best judgment about how long this warm up process should go.

Some Key Points To Remember

1.) Have a room set aside were you and the prospect can talk in private. If your facility is so small that there isn’t any place you can have complete privacy, you may want to consider moving to an off-site location once you have toured the facilities.

2.) In order to raise as few questions as possible with your employees, try to minimize open discussions during the touritself. Instead preview for your guest just what you are going to show him and then review it afterwards. It is in the private room, or off-site location, where the buyer can ask more detailed question about what you have shown him.

3.) Try to customize each tour to suit the interests or hot buttons of the individual buyer. If it is a manufacturing facility, the buyer with the engineering background is going to be looking for different things than the buyer with a sales & marketing background. What’s right up the engineers alley might be Greek to the salesman. Don’t try to make one tour fit all buyers.

4.) Accept the fact that that you can’t touch on every single aspect of your business in one meeting. It’s likely that the minute the buyer leaves your premises you will remember somepositive feature or fact you wanted to share with him.

You can always follow up immediately after the meeting with a “Thank You” e-mail to thank them for coming in and to see if they have any new questions. And then you can drop in one or two of those positive points you forgot about during the meeting.

The buyer is likely to be overwhelmed with new information anyway. So resist the temptation to throw in the kitchen sink.

Is Now A Good Time To Negotiate?

This first face to face meeting with the buyer is certainly an appropriate time begin to discuss/negotiate the details of an actual deal.

However, while your are actually taking the prospect on a tour of your facilities, you want to keep the discussion limited to the business itself: products, manufacturing processes etc. The last thing you want to deal with on the tour is questions like, “What is the minimum down payment you will accept”?

Let the buyer know you will be happy to discuss these issues inprivate. But while on the tour, and immediately after, make sure that discussions are focused solely on that. When all his questions and concerns related to the tour have been answered and you are in private, then you can move on to discussing the terms of the deal.

In most cases the buyer will not be prepared to get intodetailed negotiations with you at this point – they have learned a lot of new information about your business that they will want to review.

But now would be a good time to discuss with the buyer atimeline for when you would like to receive LOI from buyers, how much time you believe is reasonable for the buyer to conduct Due Diligence, and your target date for the closing.

Lastly, you want to discuss what will happen next.

I suggest you let the buyer know you will be calling in 2-3 days to see if he has any further questions. This gives him some time to review and consider all that he has learned while visiting the business. I would also send ateh “Thank You” e-mail mentioned above immediately after the meeting or that night and include one or two additional positive features that weren’t covered in the actual meeting.

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The Business Buyers First Visit To Your Location

By on July 30, 2012 in Dealing With The Buyer, HOW TO SELL A BUSINESS

Over the next 2 days we will discuss the details of having your buyer visit your business for the first time.

A good site visit can go a long way in creating enthusiasm in the buyer and it can help to distinguish your business from all the other businesses that the buyer is considering.

You want to make sure that you do all the necessary preparation to make the visit as productive as possible.

You also want to make sure that you only conduct a tour of your site for the very best prospects.

Too many sellers make the mistake of hosting visits from buyers at the very beginning – before the buyer has even read their selling memorandum.

The proper time for the buyer to visit your business in person is after they have received your selling memorandum, had some time to digest it and ask you some follow up questions.

Not only will you save time and protect your confidentiality, but the in-person meetings you do hold will be much more productive because the buyer will be properly prepared when he arrives.

Preparation

Take some time to spruce up the appearance of your location. Even small things like discarding useless office equipment and cleaning up the reception area can have a big effect on the overall impression you make on the buyer

From the time the buyer first hears about your business, they will try to picture in their mind what it actually looks like. This image is likely to be an idealized one – it will look in their mind’s eye exactly how the wish it to look.

Obviously, you can’t make everything about your facilities perfect, but you don’t want that moment when they first lay eyes on your location to be a letdown. So do everything you reasonably can to make the physical location as attractive as possible.

Pride of ownership is a big factor in the buyer’s decision making process. While you are undoubtedly proud of your business, it’s also possible that over the years you have let things slip a little when it comes to organization and cleanliness. If so, admit itand take steps to improve things.

Scheduling The Meeting

In most cases you will want to meet with your prospect for the first time after-hours or on the weekend. You want to be able to devote your undivided attention to them. The fewer interruptions the better.

However, it may be to your advantage to have the prospect see the business while it’s open – in the case of a busy restaurant or retail store for example.

If this is the case you can have the prospect come by just for a look. You can schedule a more detailed sit-down meeting later.

If the buyer insists on seeing the business while it is open (and he is a really strong prospect) you may be forced to conduct the complete tour during business hours. Just be sure he knows you are concerned about confidentiality and that he should not speak with any employees or customers about why he is there.

Make sure that when you sit down with the prospect for the first in-depth meeting that you will not be disturbed and that you have set aside plenty of time.

Nothing is more destructive than to have a meeting that is going well be cut short because either of you has another appointment. Sometimes you can’t get that level of enthusiasm back that you had been able to achieve in a previous meeting.

Tomorrow I will discuss what to do when the buyer actually arrives at your business.

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How To Disclose Info To Business Buyers While Protecting Your Confidentiality PART 2

By on July 28, 2012 in Dealing With The Buyer, HOW TO SELL A BUSINESS

Yesterday we talked about how to manage the disclosure of confidential information about your business early in the selling process.

In this post we want to discuss what you should do if a buyer asks for a piece of information that you are not comfortable revealing.

Sometimes you will get requests for information from a very good buying prospect that you just can’t fulfill. For example, after he receives your Selling Memorandum, the buyer may request to see a list of your customers or suppliers.

You must determine why the buyer wants this very specific information. Does he want to steal your customers from you? Or perhaps (and more likely) the buyer wants to see if you are overly dependent on one customer. If 80% of your revenues come from just one or two clients, that is a legitimate red flag that would concern any buyer.

But your prospect doesn’t need a complete list of you customers along with contact information to find this out. Instead, you can prepare a report that shows what percentage of your revenues comes from each customer (or the top 10 or 20 customers if that’s more appropriate).

So, whenever a buyer makes a request for an entire category of information, don’t flatly refuse. Instead, try to figure out the buyer’s specific need or concern and then provide just enough information to satisfy that need.

In addition to the names and contact information of your customers and suppliers, information that should be off limits until a buyer signs a Letter Of Intent should include all proprietary information regarding your manufacturing processes, blueprints, recipes, product diagrams.

Remember: Only one of your prospects will end up buying your business. But all the other prospects will still posses whatever information you give them after they drop out.

So a good question to ask yourself when deciding whether or not to provide certain information to a prospect is:

If this person does not buy my business, could they use this information to harm my company’s value or the success of the new owner?

If a buyer absolutely insists that you provide a certain piece of information that you are uncomfortable providing, you have three choices:

1.) You can flatly say “no” and risk losing him as a prospect.

2.) You can give him the exact information he asked for

3.) You can prepare a report that provides just the information you are comfortable revealing and hope that it will satisfy the buyer’s need.

Exactly how you handle a situation like this will depend on the quality of the prospect who makes the request.

You should rank all your prospects according to their qualifications and desirability - Which prospect do you want to take over your business? You may decide to give that prospect much more detailed information than the buyer at the bottom of your list.

But whatever you decide, make sure that the buyer understands you are not trying to hide anything. There is certain information that you are uncomfortable releasing now, but that once the buyer has submitted a Letter Of Intent he will have complete access to your business.

Moving Forward

Gradually some buyers will eliminate themselves from consideration. Others, you will eliminate due to a lack of agreement on the issues surrounding the sale.

But, if a well-qualified prospect is interested after reading your selling memorandum and they have had their questions answered, you will want to set aside an hour at night or on the weekend and talk to your prospect over the phone about the specifics of the possible deal. In addition to the price you may want to discuss:

•Down payment and other financing terms.

•Your future employment with the company

•The future of key employees with the company

•Any assets that will be removed from the company by you at the close such as a company car

•A non-compete clause

The next step is for the prospect to visit and tour your facility.

You should reserve the privilege of an on-site visit for only the most qualified and interested of prospects.

Site visits are time consuming to prepare for, may be difficult to schedule and have the potential to unnerve your employees.

Buyers will often want to see the business immediately. Buy you will want to do as much as possible with the buyer via e-mail, phone and through your well prepared Selling Memorandum before the prospects visits.

If the buyer isn’t enthusiastic at this point there is no need to go through with an actual tour of your location.

 

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How To Disclose Info To Business Buyers While Protecting Your Confidentiality

By on July 27, 2012 in Dealing With The Buyer, HOW TO SELL A BUSINESS

In our next two blog posts we are going to talk about how you should manage the disclosure of important information to the buyer. If you do it right, the buyer should learn enough about your business to make intelligent decisions without you having to disclose too much too soon.

Soon after you send the buyer your Selling Memorandum they will begin to respond with questions and requests for more specific information.

This creates a problem: The prospect has a legitimate need for details about your business not included in your Selling Memorandum and you have a legitimate need to make sure sensitive information doesn’t get into the wrong hands.

Consider that of all the prospects you talk to about your business, only one will actually buy it. But all the other prospects will still posses the knowledge you shared with them and you can’t afford to have confidential information such as customers lists, recipes or other trade secrets getting in to the wrong hands.

So managing the disclosure of information about your business and making judgments along the way as to which prospects deserve your time and attention are important keys to successfully selling your business.

Here are some things you can do to identify the best prospects and provide them with just enough information to move them through the buying process.

 

Ask The Buyer To Submit Their Questions And Requests For More Details In Writing

In order to protect your confidentiality, I strongly suggest that you tell the buyer to put his requests/questions in writing. Doing it this way:

• Allows you to think through your responses more thoroughly before responding

• Prevents you from spilling too much information off the top of your head

• Means you won’t get interrupted at the wrong time – imagine if 5 buyers have your selling memorandum and each called you at your office whenever they thought of a new question.

• Puts all your communication in writing, so there is less chance of misunderstandings – you can always refer back to what you actually wrote instead of trying to remember what you said days or weeks ago.

• Saves you time – certain questions will come up again and again. By putting your answers in writing you will have a pre-written response ready whenever a second or third prospect asks the same question.

So, try to keep the initial communication after the Selling Memorandum confined to e-mail: it’s quick, confidential and allows you the time to think through your responses carefully.

Continue To Qualify The Buyer Throughout The Process

An additional benefit of asking prospects to submit their questions in writing is that it is provides another opportunity qualify the buyer.

A professional will understand your request and gladly cooperate. Many buyer prospects already own, or have owned, a business and know the importance of confidentiality.

An unprofessional prospect on the other hand will often resist this request and pout about the “inconvenience”.

Also, the weak prospect will often submit poorly written or unclear requests/questions.

Even though you did some qualifying before you sent the prospect your Selling Memorandum, continue to observe the buyer:

**When they do communicate with you, is it obvious they have taken the time to prepare their questions and comments or does it seem like they are flying by the seat of their pants?

**Do they respect your time and your need for confidentiality or do they call or show up unannounced?

**If they take issue with your price, recast financials or other elements of your offering, do they make a reasonable case for their objection or are they just fishing for a low ball price

Eventually you will accept a Letter Of Intent from just one buyer and enter into an exclusive negotiation. At that point (and during Due Diligence) you will have to reveal all the details and secrets about your business. If you can’t see yourself making this kind of a commitment to a particular buyer than there is no need to go any further – cut them loose now!

Tomorrow we will talk about how you should handle a situation where the buyer has asked for sensitive information that you are not yet ready to disclose

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