As you prepare to put your house on the market, you get the word out to as many people as possible.  The “For Sale” sign is placed in the front yard, you invite people into your home during an open house and you put ads in the newspaper and online.  You want everyone to know your house is for sale.

However, that’s not the case when selling a business.  Place an ad that your business is on the market and people start to wonder. It creates an air of uncertainty that can be detrimental to your bottom line and put the company in jeopardy.    

To increase the likelihood of a successful sale of a business at an optimum price, keep it confidential!

What’s likely to happen if people find out the business is up for sale?

Employees get nervous.  They begin to worry if their jobs will disappear or if they’ll get along with a new owner.  Some may even quit before you have a chance to reassure them and it will probably be the good employees that leave.  They’ll start looking for jobs that make them feel more secure.    

Losing key people is serious, particularly during the sale process.  Key staff members provide valuable continuity and business knowledge that buyers are looking for.  Lose them and potential buyers may be lost too.

Customers begin to wonder.  They may become concerned whether the business has problems that could threaten their supply chain.  They may start questioning if they’ll get the same quality from the new owner. 

Competitors will spread the word.  Once the competition finds out, rest assured they’ll let your customers know and use it as ammunition to bring that business to their company.  It opens the door for them to steal business from you.    

Vendors and creditors may tighten terms.  You may be working with terms of net 45 or more to benefit your own cash flow.  But once creditors learn that the business is for sale, you may find those terms tightening or notes unexpectedly called due.

On average, a business sale takes nine months to one year.  If even some of these changes occur early on, the impact can be dramatic.  You’ll find that you’re not only running a business, but you’re busy putting out fires. 

A buyer wants a successful operation with few changes until he or she can make those changes.  Too many question marks translates to greater risk and lower purchase offers. 

Confidentiality is crucial no matter the size of the company or the type of business.  To maintain confidentiality, use a professional who understands the process – use an intermediary.  An intermediary will market the business in a confidential manner, while providing just enough information to attract the buyers you are looking for.    

The intermediary should be diligent in screening inquiries to be sure competitors aren’t out there fishing for details.  The intermediary should only be sharing your identity after determining that a potential buyer is seriously interested and is qualified.  Those serious and qualified buyers should also be required to sign a binding confidentiality agreement that holds them accountable for leaking information.

You want to maintain your business as usual for as long as possible. Keeping the sale confidential until the time is right will help you to minimize uncertainty and maximize the sale. 

The International Business Brokers Association® is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions.  IBBA® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois. 

©2007 International Business Brokers Association® (IBBA®) all rights reserved

Permission to reuse any or all of this material should be directed to the IBBA at 888-686-4442 and is restricted to IBBA members. 

The Process of Buying a Business

Buying a business is a process that takes time. It can sometimes take years to find the right opportunity.

Unfortunately, many buyers want to look at all available options, thinking they’ll recognize what they’re looking for when they see it.  That approach is actually a waste valuable time and energy and can lead to frustration and an end to the search. Or the potential buyer may miss out on great opportunities because they weren’t found early enough or they weren’t ready to move forward with a purchase.

There are some key steps to follow in the business search process:

Start with a self assessment – Ask yourself why you want to buy a business. What types of work activities do you like and what kind of lifestyle do you want to pursue? It’s important to understand that there may be more work and longer hours for an owner in some industries.  Be sure to include your family in the assessment.

Establish financial expectations – Determine how much money you need and want to earn.  Make sure your expectations are in line with the types of businesses you are targeting and the return they can produce.

Put together a personal financial statement – Outline your assets and liabilities.   Identify what you can use for your initial investment. The personal financial statement serves as proof of your financial wherewithal, so be prepared to share this document with a seller’s intermediary.

Update your résumé – Sellers want to be sure that their business will continue to be a success. They’re looking for someone with the experience necessary to continue their legacy and take care of the staff.  Ultimately, you’re selling yourself to the current owner(s), the lender and the professionals representing them.   

Outline your acquisition criteria – Define the parameters of your search. Ideally it should include your targeted industries, geographic area and transaction size.  Your acquisition criteria will help you demonstrate your commitment to finding the right business for you.

Search multiple sources and enlist help – Let your professional advisors (e.g. attorney, accountant, financial planner) know you are looking for a business. Most importantly, contact business intermediaries who represent businesses within your targeted market. They will notify you of available companies that meet your criteria and qualifications.

Most business brokers or intermediaries work for the seller and are paid by the seller. That means you can enjoy the luxury of their services at no cost. The intermediary is looking out for the seller’s best interests, so you should have experienced council to represent you in any transaction.

When interested in a business, you want the business intermediary to be selling you to the seller. Prove to them that you are a qualified, motivated buyer by preparing for your search.

Your motivation, lifestyle, expectations, financial statement and résumé will help you develop your acquisition criteria. Identifying and communicating your acquisition criteria, qualifications and experience will save time and frustration and will place you far ahead of less focused buyers.

The International Business Brokers Association® is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions.  IBBA® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois. 

©2008 International Business Brokers Association® (IBBA®) all rights reserved

Permission to reuse any or all of this material should be directed to the IBBA at 888-686-4442 and is restricted to IBBA members.