You can sell your business to the right buyer (and avoid major headaches) with some basic understanding and the right people around you. Chances are you’ve never done this before, and almost certainly not enough to become an expert. Sometimes you only get one shot to sell it to the right buyer. And it can quickly become overwhelming without the right connections and experience.
If you have built a successful business, you probably already have experience with marketing, accounting and sales. You have probably developed the necessary skills to manage your employee, supplier and customer relationships.
And you probably collected a full contact list (or SalesForce database, or even a Rolodex) of everyone it takes to operate your business. But you probably think you don’t have connections to those who may be interested in buying your business.
Fortunately, that won’t be a problem if you take the correct approach. Selling your business is a process, and preparedness for that process can’t be overstated.
Most owners have more options than they realize. Thanks to a proliferation in financing techniques, changes in attitudes, and a host of other factors, today’s buyers come from an increasingly diverse range of backgrounds and group sizes.
A short list of potential buyer groups might look like this:
Potential buyers fall into one of three general buckets:
Generally the highest-paying buyer group, want to buy your company to improve the fortunes of their own company. This could mean reducing competition, realizing synergies, or gaining access to resources or markets. Strategic buyers include competitors, suppliers and customers.
These include private equity funds, family offices, and other businesses that buy, improve, and sell other businesses. For more on private equity buyers, click here.
These include entrepreneurs and managers (including your own employees) who see your business as a gateway to a secure a job and income or lifestyle. Operators tend to be the least experienced and the least capable of securing ideal financing, but that doesn’t necessarily exclude them from being the right buyer. Selling to an ESOP is one way to essentially sell your business to your employees.
For more on the difference between strategic and financial buyers, click here.
Business associations, sometimes called industry trade groups or sector associations, are a natural starting point. These are made by companies or intermediaries with common interests in your sector. The classic role of industry organizations is to represent their members and provide collective services.
This should be an easy start if you have a lot of peer connections. If you are less certain, check out the WEDDLE’s Association Directory or try a keyword search through The American Society of Association Executives.
Put the word out that you are looking for buyers. Many organizations have trade-group newsletters or other publications where you can place an advertisement. Place calls and follow up with letters or emails.
You probably work with specialists who have useful contacts outside of your business circle. These include your accountant, business intermediary or broker (if you have already sought one out), attorney, financial advisor or business consultant. If you have worked with investment bankers or other business financing experts, even better.
These experts can leverage their networks to your advantage and, in some cases, even help refine your approach to the sale.
Reach out to the Young President’s Organization (YPO) and Vistage International — two of the largest peer advisory groups for executives. YPO has more than 400 chapters in over 125 countries; if you want to try potential buyers over 50 years old, try the World President’s Organization (WPO) too. Vistage, which used to be known as The Executive Committee, is smaller and targets owners only.
Some buyer groups specialize within a known geographic or urban region. Your local Chamber of Commerce and Rotary Club are obvious networks. You might find nearby businesses (or their employees), suppliers or local investors within these.
The internet’s largest business-for-sale network is BizBuySell, which claims to have more than 90,000 buyers registered “who receive notifications when a business matching their search parameters is posted to the database.”
List your business on MergerNetwork, which created the first online buyer database for business-for-sale transactions in 2012. Business Buyers Directory is another option. Most states and some cities have local buyer databases and listing options.
There are brokers for business sales, just as with houses and stocks. These experts combine large professional networks with technical and legal understanding of the process. These range from standard business brokers to investment bankers.
You may be unsure about hiring an intermediary and wondering “Is it necessary?”
In many cases, yes — but not always. Business brokers exist to solve an information asymmetry, namely that owners often don’t know who the right buyer is or how to find that buyer. They charge for this service. You should be sure that the benefits you receive from an intermediary outweigh their costs.
Imagine you are selling your house. The real estate market in your area is extremely active, and prices are strong. Moreover, you are already connected to a lot of prospective buyers through your social or professional life. You probably don’t need a real estate broker in this case, especially if you have the time to devote to marketing.
Now imagine you are selling into a cold market. You are also busy and aren’t confident that you have the right connections anyway. There is a risk your home may be listed for months and receive little buyer attention. That is a lot of uncertainty. This is the perfect scenario for a broker hire.
Apply the same mental exercise to your business. Is a business broker or investment banker worth the cost? Or can your transaction team (you and your accountants, attorneys, etc) find the right buyer on your own? If there is too much uncertainty, it may be time to add an intermediary.
For more on how to assemble the right transaction team, click here.
What a Racket: Tales of Equifax, Experian and TransUnion
When it comes to Succession Planning: Plan “B” Is Always Plan “A”
What Is the ROI for a Private Company Board of Directors?
Committed Leadership: Are You the Chicken or the Pig?
When Is it Appropriate to Take on High Interest Rate Debt?
Cybersecurity Challenges for Boards of Directors