Neal had earned his MBA, holds CBI and ABI designations and serves on the boards of the Carolina Virginia Business Brokers Association (CVBBA) and the Better Business Bureau of Eastern NC.
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Business owners are responsible with money. Irresponsible financial stewards of money run out of funds and cease to be business owners. For this reason, many owners seek to save on costs and opt for the “Do it yourself” method when it comes to one of the most important decisions in running a business; selling it.
While the desire to save may be real, so to are the reasons to consider hiring a qualified intermediary when selling a business. These benefits of representation more than justify the cost of the investment. It’s important to remember that selling a business is a different skill set than building a successful one, and deals are a team sport. And costs come in many forms; financial, emotional, efficiency, and efficacy.
Without further ado, let’s explore 20 ways that intermediaries pay for themselves when selling a business:
1. Save on attorney fees
Attorneys charge by the hour, but intermediaries charge success fees at the end of the deal. Relying an attorney to do work that an intermediary should be doing as part of his or her success fee is an inefficient use of resources.
2. Negotiate The Price
There is no facial expression that an owner can make that can be more extreme than the facial expression that the offering party imagines when the owner’s representation explains how upset the owner was when the offer was presented. Enabling a 3rd party to present offers and relay responses is a huge leverage point in negotiation.
3. Save time in a deal
Experienced deal makers know the appropriate steps in a deal and know where bottlenecks develop. They know how to get deals done quickly by creating market pressures that facilitate success. Inexperienced buyers and sellers working with legal counsel without a meeting of the minds commonly results in prolonged deals, and time kills deals. Deal fatigue is real.
4. Be the Rock
Owner’s in the midst of what’s often the most significant transaction they’ve ever been a part of who can’t lean on the managers and other staff they are accustomed to turning to can become paralytic. A good intermediary can be a source of answers for all things deal related. Great intermediaries become lifelong friends with the clients after the deal because they have accomplished something challenging together.
5. Push the deal forward
Intermediaries are considered the “quarterbacks” of the deal. While deals can have dozens of stakeholders involved, it’s primarily the owner’s intermediary who is the central figure pushing forward with a plan to cross the finish line on time.
6. Communicate directly with all parties
It’s important to remember that attorneys are prohibited from speaking directly with principals who have representation on the other side of the deal, but intermediaries can speak to anyone in a deal. Direct communication saves time and money, and has saved many deals that have escalated beyond the buyer and seller to the attorney level.
7. Allow the owner to maintain business value
Owners who represent themselves risk losing focus on running their business, and often take their foot off the gas when it comes to sales and earnings. As businesses are priced on most recent financials, owners who spend significant time, energy, and hope on a single buyer can find themselves in a dangerous situation if that buyer flakes out. Only intermediaries can juggle multiple buyers and allow an owner to focus on his or her core duties of running the business. Selling a business is a full time commitment and owners should stay focused on operations.
8. Enable confidential marketing
It is extremely challenging to respond to buyer leads without representation and maintain confidentiality. Intermediaries are able to represent “blind listings” and hold back information from competitors and other parties that shouldn’t gain access to business data.
9. Create a competitive market opportunity
Creating a multiple offer situation is the best way to increase business value and achieve a premium price. Multiple buyers are needed to achieve multiple offer situations, and this takes a concerted effort to create significant buyer interest. Intermediaries can leverage buyer and broker networks to get “blinded” business opportunities out to as many business buyers as possible to create this competitive environment.
10. Buffering buyers and sellers
Buyers and sellers left unchecked can result in intense emotions and exuberant behavior which can destroy deals and goodwill. Intermediaries literally “go between” principals in a transaction to regulate the process and avoid inflammatory situations.
11. Bring the experience
Most buyers and sellers have not done enough deals to know when and where things go south. Intermediaries bring the experience to know how to handle the common crises that derail most deals .
12. Find the money
Deals can’t get done without money, and intermediaries know what can be financed, and how to find the money through the right deal structures and financial partners.
13. Price the business properly
75% of deals that are listed on public marketplaces don’t sell and the most common reason is they are overpriced. Unsold businesses often decline in value and fail to achieve the owner’s goal to move on to their next entrepreneurial chapter. Attorney’s fees from uncompleted deals are still owed.
14. Separate the real estate
Often owners with real estate don’t properly separate the business from their real estate, resulting in inefficiencies in the value of either asset. Understanding the rental rate can shift the value to the proper asset, resulting in a larger purchase price.
15. Promote the opportunity
A properly promoted business needs is marketed sufficiently across multiple channels consistently. Quality intermediaries have the resources to market businesses because they promote at scale and can leverage platforms built for brokers.
16. Coordinate the closing
Closing a deal is a complicated project with significant logistics that attorneys can use help with. Intermediaries add value by assisting in the minutia such as identifying work in progress, calculating prorations, and assigning deposits. While attorneys can close the deal independently, it’s often the intermediary who knows the granular details, and can confirm that nothing is missed.
17. Provide the space
Meeting at an operating business is not a conducive place to achieve a confidential business sale. The private office of an intermediary is a controlled and confidential space that buyers and sellers can meet to have productive meetings and get deals done.
18. Screen the buyers
The majority of buyers who inquire into buying a business have no business buying that business. It takes time and resources to screen buyers and protect owners from distributing confidential information to competitors and chronic inquirers who never close deals. An owner’s time is better spent on keeping the value of their business at a maximum.
19. Put the pieces together
From packaging the business, to screening the buyer, to finding the money, to selecting the best deal structure that works for all parties, there is an art and a science to putting all of the pieces together. Owners and buyers who can be too close to a deal to see how it can all come together; skilled intermediaries can.
20. Get the deal done
Ultimately, the deal that doesn’t get done is the most significant waste of time and money that can occur. Legal fees accumulate, goodwill is lost, and the value of the business is often significantly diminished from failed deals.
Savvy business owners invest in the right resources to achieve success. Intermediaries serve a vital role in transactions to create competition, efficiencies, and processes to get deals done. The value they bring should cover their cost, and then some.
Thank you both for confirming my suspicions on this. You’re guessing right that we are in a small industry, and I want to know if this is a competitor (and REALLY want to know if Jeff Bezos wants us!) I appreciate that you both were willing to give this question thought.
Lynn
A broker representing a potential buyer wants to sign our NDA instead of the actual buyer. But he would then disclose to the potential buyer details of our business and assets (and we would not know who that buyer is). We have a clause in the NDA that prohibits a third party to whom information is disclosed from releasing that info publicly, but it still feels wrong to have only the broker under NDA and not the buyer. Thoughts?
Lynn,
I am a business broker and EXIT Promise advisor. I’ve never seen an NDA that did not require the buyer to sign the NDA. And, the NDA typically has language that states the buyer can share confidential information with certain third party advisors, and the buyer would be responsible for any breach of the NDA by third parties. You also need to know the name of this buyer. The buyer could be one of your competitors or someone else you do not want to engage with.
Lynn: Neal Isaacs, another board contributor, probably has a good opinion on this, but my opinion is that the broker should sign a separate NDA and the potential buyer should definitely sign their own NDA for the reasons you cited. You definitely want to know who the end potential buyer is–too much monkey business with an “anonymous” buyer, especially if you are in a small industry where the players all know each other. The buyer’s broker’s job is to make the contact and be the go-between in the negotiation. It’s not a good idea for the broker to act in the interests of an anonymous buyer as far as the seller is concerned. The broker might be representing Jeff Bezos, and you’d want to know that in advance!