Should I sell my company myself or hire a business broker?

if you own a company and are thinking about retiring, then you may be wondering: Should I sell my company myself or hire a business broker?

You may be deciding whether to pass your business down to one or more of your family members. Some consideration are, do they have the capabilities and interest to take over the company. Certainly, there would be a greater comfort level if they are already working in the business.  This would give you a better idea of their skills and interest.

If they are interested and have the skills then you probably don’t need a business broker. You can just hire an solicitor who can draw up the necessary paperwork for the transfer of the business.

If however, you don’t have family members with the interest or abilities to run the business then there is a lot to learn about selling your company. We will outline some of the considerations to answer the question: Should I sell my company myself or hire a business broker?

When do you want to retire from your company?

One of the first things to consider is when do you want to be fully retired and how do you want your transition period to look. For instance, in many cases, the buyer will want you to stay on for a transition period. This transition period can vary quite a bit depending on what the seller and buyer are looking for.

Getting along well with a potential buyer

This is a where a business broker can be helpful in screening buyers not only financially, but also to make sure they are the type of people that sellers like to work with.

In addition, a Business Broker will usually introduce multiple buyers so that a seller has different options to choose from. There is no accounting for personal chemistry and that you can only see from spending time with each other. It’s a two-way street so buyers also want someone they are comfortable working with.

A good Business Broker can set the stage for buyer and seller to get along with introductions and giving both parties background on the other person before a meeting takes place. This helps to start the relationship off with confidence and makes it easier to focus on building a relationship.

How much is your company worth?

After you have an idea of when to start the process of selling your company, the next question would be how much can you get for your company? This is important for a couple of reasons. One is that you want to be confident that the proceeds from the sale of the company plus your other assets and income will be enough to support you in retirement.

The other reason this is important is that you want to have realistic expectations of a potential asking price and offers for your company. You usually want to have an asking price that leaves some room for negotiation but isn’t so high that you don’t get any offers for the business.

To provide a potential asking price, Business Brokers will typically review your last 3 or more years of tax returns and profit and loss statements plus a year to date financial statement and interview you to find out about the strengths and weaknesses of your business. They will ask questions about your customers, products and services, employees, competitors, growth opportunities, and challenges.  Then they will compare this information with their knowledge of the market and what other similar companies sell for and provide you with a recommendation of a potential asking price.

Protecting confidentiality

When you are selling a business it is important that the word doesn’t get out to your customers, suppliers, employees, and competitors that you are selling your business. If you are representing yourself it is very difficult to prevent this from happening. Business Brokers are trained in protecting their client’s confidentiality.

They will write a summary of your business that provides some information but not the exact name or location of the Company. Before providing these details they will have potential buyers sign a confidentiality agreement and get information such as whether they are qualified to purchase the business. This limits the number of people that find out that the business is for sale and prohibits them from spreading the word.

Multiple offers

Experienced Business Brokers will make wise use of their client’s time by only introducing qualified buyers to the seller. Having spoken with many potential buyers, an experienced business broker will have the instincts and knowledge to determine which buyers are most likely to buy a particular business. They are also good at working with a number of buyers at once to potentially create a bidding environment for their client’s business which provides leverage in negotiations. They will help to negotiate not just the price but the terms and conditions of the accepted offer.

Many business brokers have relationships with banks which they can bring in to provide financing. The banking relationships enable the Broker to have a keen understanding of whether a particular buyer is able to get financing for a given deal.

When you are selecting which offers to go with, the best business brokers will help their client to understand not just the highest offer but who is most likely to be able to close on an offer and which deal structure would be best.  Business Brokers make recommendations but at the end of the day, it is an owner who makes the final decision. Once you decide which offer to accept there is still a lot of work to be done before you are sitting around a closing table.

Due diligence

Experienced Brokers can guide you through due diligence and there are often things that come up which can cause a deal to go down the wrong path. Buyers and Sellers will get differing opinions from their solicitors, accountants, family members, etc.  Brokers can help to keep things on track and guide both buyers and sellers to let them know what is normal and what is deviating from the norm.

Often there is a period of exclusivity that is granted to potential buyers to perform due diligence. If a buyer is dragging their feet, a Broker can use the leverage of other potential buyers that are waiting in the wings, to keep things moving forward or switch to another potential buyer that is not prepared to move forward in a timely fashion.

Potential Buyers will dig deeper into the financial information to confirm what they have been given. They will also look for potential risk areas such as whether a large customer makes up a significant portion of the revenue and what would happen if that customer would be lost. They’ll look at contracts to determine whether some are expiring soon. They will also look at trends to see if a business is trending up or down. They will review if there are any claims or liens against the business.

Purchase agreement

The process of negotiating a Purchase Agreement can either start right after an accepted offer, but more often it starts when the due diligence is complete or at least off to a good start. Before engaging in the costs of an solicitor, usually, buyer and seller want to feel comfortable that the deal is moving forward.  If a buyer or seller need a solicitor with experience in closing business sale transactions, an experienced business broker can recommend solicitors with experience that they have done business with.

Normally the seller’s solicitor will be the first solicitor to draw up a contract based on the terms of the Letter of Intent. In some cases, the buyer’s solicitor will draw it up.  They will typically go back and forth a number of times to negotiate the details of the deal.  A business broker can keep things on track if the solicitors are at a roadblock. The best way to keep things moving forward is to establish good relationships with all parties to effectively resolve any differences that may come up.

After the purchase agreement is agreed the next step would be to schedule a closing date. Prior to the closing, the solicitors will make sure that any adjustments are made for bills that haven’t been paid yet but are accrued or vice versa. Once this has been done and the closing is scheduled you can relax. At this point, the deal is typically good to go. The closing is just signing documents, exchanging funds, and any information about plans for the transition.

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