It can be a gut-wrenching prospect: How do you go about selling your business? What is the process? How can you get the best price? How can you keep it all confidential? How can you keep the business running smoothly, and maximize its value, all along?
These are the kinds of questions I get asked every day as a business coach. I’m able to provide answers based on my ten-plus years of helping other clients do this, as well as my own personal experience selling a business in the eight-digit range. In this article, I’ll cover some of the biggest topics to help you get started on this challenging yet fulfilling journey!
First things first. You can’t do this yourself. You wouldn’t sell your house on your own, why would you try and undertake a multimillion-dollar business sale? Abraham Lincoln once quipped that “he who represents himself has a fool for a client,” and the same applies here. Get referrals from your legal and tax advisors, your business coach (if you have one; if you don’t, contact me), as well as friends who have sold their own businesses in comparable price ranges.
There are different types of help you can retain. There are M&A advisors, business brokers, and investment bankers. Business brokers are a little like real-estate agents: they take listings and their price ranges are usually lower than those represented by an investment banker. Investment bankers, or IBs, come with lots of advantages.
Why use an investment banker?
Let me count the ways! Here’s a quick rundown:
- They can help you prepare. Selling a business can take one to three years. A good IB will help you prepare the company for sale. There are reams of due-diligence and disclosure documents to complete and store in the cloud; your IB can help with this onerous process.
- They add credibility. Part of the IB’s job is to create a “book” which shows off your business and numbers. The value of this book cannot be overstated. A good IB adds the right professionalism and polish to your presentation.
- They do this everyday. And you don’t! This means that they have infinitely more experience in this specialty than you could ever hope to gain yourself. They see, and recognize, the economic cycles that come and go, helping you catch the crest of the biggest wave.
- They keep it on the QT. When you start to get unsolicited offers, when you’re thinking about your own exit or retirement or even selling to your management team, you need to keep these thoughts and conversations confidential. A good IB will keep your information protected while shopping your business until the exact moment when disclosure becomes essential.
- They let you keep running your business. How can you and your management team stay focused on the day-to-day challenges of running your business? How can you cultivate critical relationships with customers and employees to maximize your business’ value? How can you avoid wasted time talking to lookie-loo’s and tire-kickers? Here’s how: Offload all that to your IB, and stay focused on what you do best.
- They’re dispassionate. It’s impossible for you to remain unemotional when your baby goes up for sale. Your IB, as a third party, can be objective on your behalf, buffering you from emotional aspects of the business which may not translate to added value for the buyer.
- They’ll get you the best price. Research conducted by Fairfield University in 2016 found that for that the marketing and sale of businesses valued between $10 and $250 million, 84 percent of respondents cited the final sale price as being equal or higher to the initial sale price estimated by their investment banker. An added bonus: Investment bankers can sometimes help buyers to identify funding sources, thus lubricating the process.
In addition, your investment banker will help to negotiate how you get paid for the sale. Should it be in a note or all cash? If you sell to a public company, should you take stock? Cash? Agree to an earn-out? Remember: You don’t need to agree to all the terms offered by a prospective buyer. Your IB will work closely with your personal financial advisors, tax strategist, and lawyer, helping to negotiate the terms, the timing, and the amount of warranties you will provide to a buyer.
How much do investment bankers get paid?
Investment bankers typically require a retainer, and are not likely to work without some form of guaranteed payment in advance. Fees range from 5 to 13 percent of the transaction, and are always negotiated between the seller and their representative. I do not know any investment bankers who will take deals on contingency, but if the deal is big enough, they may be willing to represent a buyer to you on contingency fee.
A note about shopping: Don’t go for bargains here. There’s often a direct correlation between rates and success, with the higher-end investment banking firm boasting a track record that’s ten times stronger than those of the bargain-basement “professionals.” Most of the people I know, particularly those who sold for more than the original asking price, feel that their investment banker added value to the structure, timing, and amount of the successful transaction. It mirrors the findings from that Fairfield University study.
Finally, some (happy) war stories
Can you get more than one prospective buyer? Heck yes! Some entrepreneurial friends of mine grew their business into a branded powerhouse, and actually declined the highest offer. They ended up selling—for $57 million—to a publicly-traded company. Why did they go for the lower price? That’s because they’re passionate devotees of the healthy lifestyle, and the bigger offer came from a tobacco company. ‘Nuff said.
Here’s another. Just as a different friend of mine was about to sell his company, he lost his biggest client, worth millions. Sounds tragic, right? But it turns out that the prospective buyer had a relationship with this same outgoing client, and was able to bring them back into the fold. Everyone won on that deal, including my friend, who walked away with $39 million in cash and stock.
Do not go it alone
Even with the best investment banker at your side, you may still need the bigger-picture perspective that only an experienced business coach can provide, especially when it comes to a life-changing transaction like the sale of your business. If you find yourself in this situation, contact me for a confidential, no-obligation discovery call, which I promise you’ll find eye-opening and rewarding… and maybe the first step toward a beautiful business relationship, too!