Why Not Sell The Business On Your Own?
There are very logical reasons why you don’t see public “Business For Sale” signs posted on reputable, profitable companies. Why? Because that sign would soon be replaced with “Going Out Of Business Sale.” Consider the following points.
First, even if the you don’t actually hang a “For Sale” sign outside the window, trying to sell it on your own through classified ads, or, heaven forbid, by word of mouth, for instance, threatens the business’ reputation and future.
Secondly, even if the right prospective buyer comes along, do you — as the owner and operator of your company — have the required skills and knowledge of how to properly represent your business in the areas of accounting, law, taxes, marketing, and more importantly, negotiating on your own behalf about perhaps your most important asset — your livelihood?
Do you, while trying to run your business as usual, have the time to find, contact and liaise with potential buyers that are serious about buying your particular business? Can you maintain the confidentiality that is required to prevent damaging your competitiveness in your market area? Do you have any experience in selling a business? Can you remain cool and patient when a buyer is trying to negotiate a lower price, particularly if their objectives are the complete reverse of your own? How would you know if you’re are getting the best price possible?
Let’s discuss the issue of primary concern when selling a business…confidentiality. The most important aspect of selling a business is confidentiality. It must be maintained throughout the entire selling process. If people find out that your business is for sale, it will be perceived in a negative light, where some, mainly your competitors, will take advantage and can cause damage to the ongoing viability of your business.
There is, of course, the proper time to disclose an impending sale. The preferable time is when the business is under contract and has entered the final stages of the selling process. By looking at the different responses by the varied types of people associated with your business to the news of your business being for sale, you will understand why confidentiality is necessary.
Customers
If customers get wind that your business is on the market, it would most likely take about a New York minute for them to hike on over to one of your competitors to do business. Losing customers affects value — less sales means less profit, and less profit means less interest from prospective buyers. After all, the major reason why someone would want to buy your business is because of the profit they could make.
Employees
If employees are told that the business is up for sale or find out in some other way, think nano-second. If you think a New York minute is fast, your employees would immediately feel insecure about their future and may seek more stable employment. Fear of new management and whether job cuts would ensue are legitimate concerns for anyone in which your business is their livelihood. Your employees are your business. If key members of staff left after hearing the news, it may seriously cripple the performance of your business. Consequently, not only will the value be reduced, but the chance of selling your business is significantly diminished.
Suppliers
Your relationship with suppliers may take a turn for the worse if they are aware of your plans to sell the business. They may feel that your decision to sell is based around financial difficulties and, if you currently purchase supplies on credit, they may reconsider your position and demand cash on delivery, which may certainly have an effect on your immediate cash flow. Great businesses are sold every day. However, in general, their is a negative perception of a business when it is rumored to be for sale.
Banks
Banks may react more cautiously towards your account if they find out that you’re selling. They may decide to put a halt on further borrowings, overdrafts or lines of credit available to you . Or, even worse, put out a call to recover any outstanding debt.
Competitors
How would you react to news of your competitor putting their business on the market? Very positively one would assume. This is exactly how your competitors will react should they discover that you are selling your business and would take quick action to affect your sales and customer confidence. Competitors would announce it from roof tops if they could to make it known that you are selling so they can reap the harvest of new profits from your old customers.
Get Professional Representation
For these reasons a business brokerage firm would be very helpful towards selling your business. In fact, they can be the essential ingredient. Let’s explain this statement further. Before you believe in the necessity of contracting with a brokerage firm to represent you in the sale of your business, it is important that you recognise the value they bring to the table.
Business brokers, in general, work on a success-based commission. Their fee is due when the business is sold. They are your partner throughout the process and utilize unique marketing methods and processes to achieve the goal. Not only will they find and screen prospective buyers for your business, they can value your business, guide negotiations, and help obtain financing for the buyer. Experienced business brokers can often obtain a higher selling price because they are in tune with current trends and economic conditions in their market area and are aware of what people are looking to buy. Supply and demand plays a factor when a business is up for sale.
Potential buyers will feel more at ease speaking to brokers then they would directly to the owner, and by doing so it allows you the time to continue running the business and keeping it profitable. Most importantly, brokers will provide the confidentiality you need, saving you potential grief from the issues surrounding customers, suppliers, and competitors.
Finding a reputable broker can be done through referrals from fellow professionals such as accountants, attorneys, small business lenders, financial planners, trade associations, commercial real estate firms, and even by word-of-mouth from people that have previously used a broker.
In conclusion, whenever a business is on the market, it must to be done in a confidential manner by someone who has done it thousands of times. Owners have good reasons for selling, and there are great businesses being sold every day. But there are negative connotations attributed to a business for sale in the general public’s eyes. They think there must be something wrong with the business. Which, of course, is not the case in most instances. Keep in mind these two statistics. The national average of businesses that actually sell once they are on the market is approximately 25%, the reasons for which a business broker could explain to you. And, only one in 15 people who start looking to purchase a business, ever actually do.
So, if trying to sell your business on your own fails, you may have lost customers, vendors, or employees. You don’t want to end up putting that sign on the window, “Going Out of Business Sale!”