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What To Expect – & Not Expect – When Selling Your Business
By Quiet Light
As a small business owner, you’re probably used to doing your homework before tackling any major project, and making the most of the sale of your business—the biggest “project” of them all—requires a lot of preparation and research. Selling your business is a complex process, but it doesn’t have to be a difficult one.
Entering the sales process with a clear understanding of what’s expected of you, as well as what you can expect from your buyer and broker, is essential to a smooth and successful sale.
What To Expect When Selling Your Business
- Lots Of Prep Work: We occasionally get sellers who suggest they’ll take a lower price in exchange for skipping the prep work of having accurate financials, back up verification, and answers at the ready. Unfortunately for such sellers, this work is essential to a successful sale. For any listing over a few thousand dollars, the overwhelming majority of buyers are simply not willing to plunk down real money without strong belief in the veracity of the seller’s financial claims. Put simply, there’s no way to skip the prep work and still close the deal.
- Hard Questions: Don’t assume you’ll be able to gloss over the Google algorithm update that cut your traffic in half, or the fact that your biggest vendor has started competing with you online. Be prepared for hard questions, and disclose everything you’d want to know if you were the buyer.
- Need For Speed: When buyers send over questions, try to respond to them within a few hours (24 hours at the most). A buyer may like your business, but he has dozens of others available to review, and another company may rouse his interest as much as yours. Keep things moving along if you want to hold the buyer’s attention.
- Buyers Who Disappear: Sometimes, a seller will approach us and say he’s already talking to one or two potential buyers, for whom he doesn’t want to pay a fee. But this strategy can backfire if these “outside the loop” buyers lose interest and vanish, taking your hopes with them. At Quiet Light Brokerage, we believe in bringing as many buyer eyeballs to the listing as possible, and not getting too attached to any particular buyer too early in the process.
- Training Is Required: Some buyers are experienced eCommerce operators who will figure out your day-to-day operations very quickly. But many buyers are new to the businesses they buy, and a large part of the value they get from the deal is your willingness to train them and help them learn the ropes. If you have an inexperienced buyer, it’s smart to prepare for one to three months of training and hands-on help following the sale.
- CPAs & Lawyers Killing Deals: Once an offer arrives, be prepared to justify and back up every claim you made along the way—including those in your marketing package. If you don’t have proof, buyers may discount or disregard your statements. We’ve seen plenty of deals change or fall apart because a seller could not back up their claims.Also, when a buyer uses a CPA or lawyer during due diligence, it’s important to remember these professionals are not motivated by the same incentives as you or the buyer (or your broker!). They typically get paid hourly, regardless of the outcome of the deal, and there’s generally no downside for them if they decide to kill a deal. To ensure a successful sale, the onus is on you as the seller to have adequate support for the information you provide.
What Not To Expect When Selling Your Business
- Bidding Wars: We’ve discussed bidding wars before. Such wars are uncommon, but they do occasionally crop up. Most buyers back off when they sense they’re being played against other buyers, especially for deals at market price or higher. A typical buyer refrain is, “If it doesn’t work out with the other buyer, then give me a call.”
- Competitors Offering More: Would-be sellers often approach us and say their business would be a perfect acquisition for XYZ Corp. We have experimented with this concept and done lots of cold calling. If we get any response at all from the potential acquirer, the offers they submit are often below what we can get on the open market! The reason? An inverted power dynamic; we’re approaching them, rather than having them come to us. Many times, they’re not in the market when we contact them, don’t have funds readily available, or simply assume our client is desperate to sell since we are cold calling.
- Buyers Who Understand Everything: Sellers often feel they’ve explained something well and the buyer gets it. The problem is, buyers are “drinking from a firehose” when making a purchase. They’re absorbing a lot of information, and many are learning things for the first time that are old hat to the seller. Be patient, repeat yourself often, test the buyer’s knowledge, and retrain them on anything they haven’t yet grasped.
- A Guaranteed Close At The Offer Price: When the broker quotes you a price, it’s based off the information you have provided. We don’t perform due diligence. But the buyer does, and if they find a material difference between your claims and reality, then you should expect some renegotiation.
- Timelines Set In Stone: Deals close when buyers feel comfortable. Sometimes that involves getting an opinion from a trusted counselor, CPA, or friend. If that trusted opinion is not available by the date indicated in the Letter of Intent, the buyer will likely request an extension. You can choose to reject the extension request, but you’ll probably lose the buyer as well.
- Becoming Rich From a Sale: Most sales occur in the range of what the business is expected to earn in the next two to three years, and the most common reasons to sell a Web business are personal ones. If your goal is to get rich, you’ll likely do better building up your business, rather than trying to sell it.
Selling your business isn’t something to be approached lightly—getting the deal you want (and deserve!) requires some real effort (and maybe just a little expert advice). You can’t prepare for every possible scenario, but by investing a little time into research and keeping your expectations clear and realistic, you can make the sale of your business more pleasant—and successful—for everyone involved.