While there are several advantages to using a business broker, there’s really only one disadvantage: his or her fee. Average fees of 10 percent are the biggest reason some business owners choose to sell their business themselves, and to rely on their lawyers and accountants for any professional assistance they might need.
If you do choose to sell your business on your own, be aware that you’ll soon be wearing multiple hats, in addition to the one you’ve already got on: that of a business owner. Some of the high-level tasks you’ll need to accomplish include valuating the business; locating qualified buyers; understanding what those buyers want; and negotiating the deal.
Valuating Your Business
While valuating your business is more complicated than we have room to go into here, a common method involves calculating net worth by subtracting liabilities from assets. Assets can include everything from machinery and office equipment to inventory, receivables, and prepaid expenses, such as taxes and deposits.
On the other side of the balance sheet are liabilities, which may reduce the selling price of your company. These include payables such as salaries, bills, and periodic expenses; short-term bank notes and/or long-term loans; as well as federal, state, and local taxes. One key drawback to this valuation method is that it does not take into account the profit or earning potential of the business.
For more helpful information on this topic, be sure to read Get an Accurate Business Valuation.
Locating Qualified Buyers
If you’re selling your business outright, you can locate the right buyer in a variety of ways. For example, if you’ve gained market share at the expense of your competitors, one or more of them might be interested in acquiring your business. Customers are another option because it may offer them new business opportunities in an area they already understand. Vendors are also good prospects, especially if you’ve been a customer of theirs for some time and have an established sales record.
Especially in small businesses, long-term employees who have learned your business inside and out can be ideal buyers. Finally, local business associations such as your chamber of commerce, business development committee, or economic development center can also help get the word out to qualified buyers.
Confidentiality Is Key
The key to successfully selling a business is maintaining control throughout, and you can’t do that when your employees, suppliers, banker, and even your competition know you’re selling. Employees tend to get nervous and distracted when their company is up for sale, while vendors can get edgy wondering if they’re going to get paid. For their part, competitors may use this information to scare off or steal your customers, which can drive down your sale price, or worse, prevent a sale from happening at all.
Know What Buyers Want
Successfully dealing with potential buyers means understanding the priorities those buyers are bringing to the table. You might be surprised to learn that money isn’t always priority number one. In fact, it’s often fourth or fifth behind the ability to control one’s own destiny, freedom from a boss or corporate structure, status, and the ability to work directly with employees and customers. When presenting your business to potential buyers, show them how buying your company can provide them with these benefits.
Negotiating the Deal
When selling a business, everything is negotiable, not just price. If you’re financing the sale on your own, you’ll have to negotiate down payment, an interest rate, length of financing, and other terms. In addition to having an accurate valuation, its helpful to know in advance how much down payment you’ll ask for and what you’re willing to accept. By being flexible (within means), you can look like the good guy when you come down a little in your asking price.