Holly founded ExitPromise.com as well as StartupPromise.com and so far has answered more than 3,000 questions asked by business owners about starting, growing and selling a business.
- New Overtime Rule Increases the Salary Exemption Thresholds - November 19, 2024
- Best Business Buyer Type For Your Business - November 4, 2024
- Maximizing After Tax Proceeds When Selling Your Business - June 7, 2024
Do it yourself (DIY) is all the rage. Everywhere I land online, and even as I shop the retail stores, inside real brick and mortar, I see this big trend. “Build your own backyard paradise, raise your own chickens and bake your own birthday cake”. I get it! And I don’t necessarily disagree. We are all more capable than we give ourselves credit for!
I believe this trend was a necessity for many during and after the great recession. When people were pulling back on spending, they simply found ways to DIY.
Today, I had to stop in my tracks and chuckle a bit though. I ran across an article about the importance of confidentiality when selling a business on Inc.com. As I read the article, I found myself shaking my head back and forth. No, no, this is not a DIY project!
The author warned he always advised business owners that they should work with a business broker and not sell a business yourself, however the majority of the article was dedicated to describing the steps to take to sell ones’ own business.
Don’t Try This at Home
If you have ever endured the process of selling a business with the assistance of professional advisors who specialize in mergers and acquisitions, you will agree with me that this is not something to try at home! You are not whipping up dinner for your friends. If you mess up dinner, you make reservations and get a good chuckle out of it. In fact, if your friends are like mine, they probably won’t let you forget the mess you made. I think we can all agree the long term consequences of such a DIY project are nil. Not so, when you sell your own business!
Business Buyers love to Bypass the Barriers
The harsh reality is this. Even if you work with an advisor such as a business broker or intermediary, business buyers will do their best to circumvent the barriers put in place to protect you. These barriers include confidentiality agreements, withholding proprietary information such as your businesses’ trade secrets and customer lists until it’s the appropriate time, and, equally important, access to you! The advisor you hire plays a vital role in establishing and maintaining your protection.
I agree with the author of the article who states that for a business owner who is representing himself in the sale of his or her business, maintaining confidentiality is critically important. However, this is only one of the many critically important matters that deserve full attention. The list of other critically important matters must be attended to as well. And yes, if you DIY all of those matters you can’t forget will include running your business too!
It reminds me of the quote “a man who represents himself has a fool for a client”.
What do you think? Do you know anyone who has successfully sold his or her own business as a DIY project?
I bought my business 9 years ago. I worked hard to build the company for the 1st 7 years. For the past 2 years, I have been far less involved, and frankly, not very interested. I’m thinking of selling the business and moving to the coast. I met with a broker a few times, and he put a value on the business. Once we got down to signing an agreement he asked me for $2500. I called a few other brokers and none charge retainers. I told the broker that I thought it showed low confidence in getting a deal done if he would allow me to walk over a tiny fraction of the commission at stake.
I’m thinking of selling my business myself and saving almost 10% of what took me a lot of time and money to build.
Does anyone else find a broker asking for a retainer odd?
Rob,
I am a business broker and featured adviser for EXIT Promise and can share with you why brokers sometimes charge a retainer fee or fee for services provided to sell a business.
Brokers will charge a fee depending on the services required to market a business and assist the owner in getting their business ready to take to market. For some of my clients, especially larger businesses, an extensive amount of work is required upfront to value the business, produce a marketing package, market the business and get the business ready to go to market. In these cases, I typically charge a fee for these services which can range from $1,000 to well over $10,000. This is very common in the industry. However, I typically credit 100% of this fee to the broker’s success fee when the business is sold. The time investment required by a broker just to get a business ready to sell can sometimes be several days or weeks.
It is very important to note that different brokers deliver a different level of service in selling a business. This can range from a basic service of posting a short Ad on a limited number of websites to an extensive marketing campaign where the broker provides a 50+ page presentation of the business and proactively contacts only the best possible buyers for the business. You need to be sure your business will be marketed in the right professional manner that will identify the best possible buyer and result in you recognizing the best possible sale price for the business. Compare brokers and make sure you understand exactly what you will get for free versus what you will get for paying a fee upfront. Sometimes free is not the right option for a business owner. Let me know if I can be of any assistance.
Greg Younts
The seller wants a personal guaranty on a baloon note after being paid annually 4 years. The buyer doesn’t wish to offer a personal guaranty on approximately the last payments over the subsequent 3 years amounting to 30% of the initial sale valuation. Is there an alternative to a personal guaranty.
Hi H Rap,
One alternative may be having the seller place the stock (or member’s interest) in escrow until all payments are made if the sale is a stock sale or to file first-position liens on all of the assets being transferred to the buyer if it’s an asset purchase agreement.
I am looking at a great business that is listed with a business broker. The owner at the start was marketing it thru the broker as complete seller financing of 995k with 200k down. The estimated Cash Flow is 250k. The seller also owns a second business that will use the business that they are selling as vendor. Both businesses (the one being sold and the sellers second business) both currently do business together and expect continued growth (12-25% per year or better). Because of this unique situation the seller is asking for a premium of approximately 250k in the asking price. The seller and we agreed on a purchase price of 900k with 250k. down 48 month note amort. @ 10 years. I really told the broker that I thought the deal should be structured with on a realistic value on current business and a earn out on the sales revenue that is generated by the business relationship with the sellers second business. We were hours away from signing a LOI and then the seller decides the seller note is to large and gets cold feet.
The seller is still very interested in selling to us but any suggestions on a structure etc.
Todd,
I am a business broker and have been involved in several transactions with both seller financing and earn-outs. Your request for the earn-out is very reasonable as the seller is asking for a premium based on their second business continuing as a significant source of revenue. With the seller financing, maybe you can offer a stronger guarantee that the seller note will be paid to ease the seller’s concerns. I can’t offer specific advice without knowing all of the details of the transaction. You might want to consider obtaining the services of a broker or business attorney to suggest a solution.
the business is listed with a biz broker, ( who by the way is a cpa.) The seller seems very honorable and wants the premium built into the purchase price. With the current cash flow 0f 200k-250k ( which at this time is estimate and they are going thru to separate the business to get an accurate cash flow) warrants a realistic purchase price of 500-650k. I think getting the seller his premium ( which i do not have a issue with) on the on going revenue of both companies is the better way to go. The services of the company that I am looking to buy is completely needed by the company the seller is keeping. So the seller really wants a buyer that is both sales focused ( i have 25 years in sales and marketing) to keeping growing the business.
Todd – I believe that you are correctly positioning the sale to mitigate the risk of the vendor (seller biz#2). The price is a premium assuming the relationship continues (a lot can happen). Perhaps offering a minimum aggregate price with a guaranteed promissory note and then tie the earnout to metrics (such as gross revenue as a result of the vendor relationship) to achieve the 900K premium. The seller should have skin in the premium as he has some level of the control in getting it.