What to expect when selling your business?
In the M&A world, as a sale-side advisor, I often get asked “what is normal?” This article is designed to address 8 of the common “normal” parts of the sale of a business. Selling a business is not something a person does often, so knowing what is normal will help you, as a Seller through the process. As a sale-side advisor I go through this process often. Here is a list of things that are usually normal, but not all-inclusive. Every transaction will have inherent unique obstacles that will need to be overcome. Having a good Sale-side Advisor is paramount to assist you through the process.
1. Seller’s Remorse. It was the day of closing and we were going to the Attorney’s office in the next hour. My phone rang and my Seller was frantic. He asked me to reassure him that he was doing the right thing. We went through the pros and cons of selling his business over the phone. He was getting top dollar for his business and it met his expectations. The sale would free his time up which is what he wanted. I explained to him that this was “normal” and most sellers went through anxiety about selling their business (their baby). He then breathed a sigh of relief. He as glad he was selling because it helped him meet his goals. He was just having doubts because he still loved his business and the people he worked with. As a business owner you have put your blood, sweat and tears into your business. You have made sacrifices that few would understand. You have lost sleep and stressed over every detail and now you are considering selling. What are you thinking? This is normal. It is much like sending a son or daughter off to college. It is necessary for their growth and your sanity.
2. Squabbling over every detail. A sale of a business is a partnership moving forward. This is the case even if you, as the Seller plan to exit within a few weeks of the closing. A smart buyer will not haggle over every detail and beat you up so bad through negotiations that you feel bitter toward him. The reason for this is he needs you. If you resent him you won’t give him the guidance he needs. Buyer’s won’t usually push you on every little detail. The transaction will need to be a win/win.
3. Buyers will push hard. Buyers will push the envelope and try to get as much as they can during due diligence. I’ve even had buyers ask to meet with employees, customers and suppliers prior to closing. Because Buyers sometimes behave badly ( in their defense, they do not mean to be this way, they just want to make sure they have all of their questions answered), a good M&A advisor is necessary to mediate and control the buyers.
4. Dissection of financials. Due Diligence is the time for Buyers to examine all of the records and information about the Business. This will include a close scrutiny of the financials. Be prepared to answer “hard” questions about every aspect of your financial reporting. Buyers will often hire outside people to examine the Business as well. Be prepared to work with several people during the Due Diligence period.
5. CPA & Attorney involvement. At some point in the transaction you will want to hire a good CPA and Attorney. Make sure your CPA and Attorney are “deal guys” meaning make sure they have advised their clients before for the sale of their businesses. Ask your Sale-side advisor if you are unable to find a good CPA or attorney. One must also put a leash on their hours. The billable hours can get out of hand and run up your costs unnecessarily. Be careful to not let the CPA’s and Attorneys “kill” the deal. I’ve seen many a deal lose steam when the CPA’s and Attorneys joined the team. I even had one particularly bad CPA try and talk my clients out the sale on numerous occasions. That will happen occasionally. Stick to what you know to be true. Don’t let the naysayers spoil a good deal. You must hire the best. Hire “deal guys.”
6. Operating Capital. If cash and operating capital is part of the deal make sure you monitor this carefully. You can end up with far less cash than you expected due to an Operating Capital deficiency at closing.
7. Downturns in the Business. Buyer’s don’t like to see a downturn or customers lost during Due Diligence. As you go through the sales process make sure to “mind your business”. Take care of business and be careful to not let the sale sidetrack you or your motivation.
8. Due Diligence. Due diligence is where the Buyer will examine your business and financial records. It usually lasts 10-30 days, but can be bit longer. During this time be prepared to answer hard questions about your performance and the business. BE HONEST. Don’t hide anything bad from the Buyer as it can make you end up in court where no one wins. If you have a sensitive issue discuss it with you Sale-side Advisor prior to disclosure to the Buyer. Full disclosure is a must. Deal with the issues and help the Buyer understand your business.
Selling your business can be a gratifying experience. I hope that these tips help Sellers better understand the process and what to expect to alleviate the stress associated with selling a business.
Rick is a Principal with Business Sales Group, a Mergers and Acquisitions firm in Heber City, Utah. He brings a unique blend of sales, entrepreneurial, and financial experience to every business he sells. He began his career as a CPA, working in Nevada and Utah where valuable financial experience was gained. He uses those skills every day. He graduated with a Master’s of Science Degree and Bachelor’s Degree from Utah State University. As a business owner he started Liberty Mortgage, a mortage bank licensed in 23 states nationwide. He eventually sold the successful company to an investor from California. He has been helping people sell their businesses since July, 2010. During his first year as a business broker with BRC, he listed and sold more businesses than the entire office combined.
As a Sale-side Advisor for Mergers and Acquisitions transactions he brings a unique blend of financial, advisory, accounting, and management skills to the table helping sellers maneuver the intricate details of the deal through closing.