How can business brokers help business owners make the most of their life’s work when they are considering transferring their business to a family member, a key employee, or an outside buyer?
Business brokers will facilitate the entire transaction. What business brokers will do that business owners, and their other advisors do not is, create a market for the business. Business owners who work with brokers will sleep well at night knowing they had an opportunity to talk to the best buyers and that they didn’t leave potentially millions of dollars on the table.
Why to Consider Working with a Business Broker
The farther away the buyer is, either by geography, customer mix, niche, or knowledge, the more likely they will pay more for a business. The reason is that the business owner has something they don’t. The following buyers are listed in order from paying the most to the least: non-obvious buyers, strategic acquirers, private equity groups, high net-worth buyers, employees, and competitors.
Business brokers may provide a complimentary market valuation. In addition to SDE or EBITA, multiples for the specific industry, they know other important factors to buyers that can help maximize sale proceeds. Every dollar of EBITA and SDE generally means multiple dollars to the sale price. Working with a broker a few years before exiting the business will pay dividends in giving the business owner time to prepare the business for transition. Brokers know what buyers value, and they will suggest steps the owner can take proactively to help them maximize their proceeds when they transition their business.
Even if the business owner has identified a potential buyer, a broker can bring other buyers in to ensure money isn’t left on the table.
Business brokers can offer:
- Prepare materials, including business profiles, ads, and target buyer lists;
- Market the business confidentially;
- Screen buyers so business owners are not working with someone who can’t get to the closing table;
- Introduce buyers to banks;
- Work with deal structure, including cash, promissory notes, earn-outs, consulting agreements, and royalties;
- Negotiate price, terms, and purchase price allocation;
- Provide deadlines for buyers’ review of financials and other contingencies;
- Ensure buyers set up their entities, insurance, and a new lease;
- Keep sellers informed of all items requested from buyers and banks;
- Help negotiate the training, transition, and net working capital; and
- Work with the buyer and the seller’s attorney to ensure legal documents are prepared for closing.
Brokers keep the sale confidential as the owner continues to run the business, and they advise on when and how to notify employees and customers.
When working with a broker, it’s advised to get a feel for that particular firms strengths such as the number of brokers in the office, what industries they specialize in (if any), and if there is a designated team identifying potential buyers. Some firms also have finance teams to help their clients with financing.
If you are a business owner considering a transition out, it’s important to talk with a business broker to maximize the sale and the ease of the sale.
For more information on this topic contact Lisa Meyer.