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selling a business

Banker, Broker or Sell it Yourself: Choosing the Right Method When Selling Business

So You’re Selling a Business: Now What?

For most business owners, selling a business is a once-in-a-lifetime event. These owners want to maximize their proceeds and they may be super salespeople, but likely have little experience selling a business. In fact, their exit may be the only meaningful transaction they experience. This is why it is extremely important for the business owner to choose between using an Investment Banker, a Business Broker, or closing on the sale himself.

Owners talk to other owners and share experiences, and sometimes, war stories abound. These can lead to hesitation on the owners’ part. But, at some point, every ownership group must transition out.

During a recent board session on exit planning, the owner announced it was time to sell, and the board supported this conclusion. The business had been profitable for 20 years, and the owner was ready to retire.

The owner was thinking about running the sale himself, but the board cautioned him to consider how to get the most value for a lifetime of work. I was asked to summarize the client’s options on how to move forward, knowing that the size of the deal could determine that choice.

There are three choices to explore when selling a business:

Hire an Investment Banker

The most qualified to run a sale process. They typically have the deepest resources, as well. Investment bankers should have the best information on deal structure and valuations. But, their minimum fees run $500K – $1M (depending on the circumstance). For a business under $1-2M EBITDA, this is usually not an option.

Once you sign an engagement letter, there will be a whirlwind of activity. The process is likely to run six to nine months. Bankers tend to deliver the most value throughout the sales process.

Bankers specialize by industry. It is important to know the dominant players within the industry, and not settle for a generalist. You also need to consider the personal chemistry of whom you may work with. You will be spending a lot of time with the banking team and will have difficult discussions. Owners should pick a bank team that they can work well with during tough times.

[Editor’s Note: Check out our webinar, “Legal and Practical Advice-Roadmap to Selling Your Business”]

Use a Business Broker

For businesses too small to be attractive to an investment bank, the downmarket version of this service is a business broker. While a broker is providing a similar service, they typically do not have comparable resources. They are likely to lack the marketing horsepower, valuation databases and market knowledge of an investment bank. Brokers and banks don’t really compete with each other, instead, they serve different market niches. For many private firms, this may be the best or only option.

Brokers serve a critical role in the lower market. They are different from banks because market forces require it. The relationship is more personal than with a bank.

For businesses too small to be attractive to an investment bank, the downmarket version of this service is a business broker.

Typically, the brokerage consists of one or two brokers. Business Brokers tend to be more pragmatic than a bank, since their clients are not as complicated as the larger clients a bank services.

Selling a Business Yourself

There are skilled CEOs who have great industry relationships, who know who the best buyers are, and are great negotiators. If that is the case, the marketing function of a bank or broker does not add value. With a good lawyer, it is certainly possible to get a fair deal done. This is also a great way to avoid fees.

Regardless of which path you choose, there are a few issues to consider:

  • Price:  This is important, but certainty of the close becomes precious as the process moves forward. Once you are invested in the process, you want to get it done as quickly as possible. While greed tends to dominate emotions during the bidding process, fear is prevalent as the risks of failure become more obvious.
  • Terms & Conditions: Typically, it is the terms & conditions that determine long-term satisfaction with the transaction. People don’t talk about the extra money they received when they are unhappy knowing they did not consider what might go wrong and could have been avoided.

As with most choices in business, getting the right team in place creates the foundation for success. This is true for running a going concern, as well as running a single transaction. Professionals can get you close to the finish line, but you, personally, will likely need to push the proverbial ball over the goal line.

About Bruce Werner

Bruce Werner is the Managing Director of Kona Advisors LLC and served as an outside director on private company boards for the last three decades. Kona Advisors LLC provides advisory services to the owners, investors and CEOs of private and family-owned businesses. With deep experience in governance, succession planning, finance, strategy and management issues, Kona…

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