Each quarter, the internal teams at FE International conduct a full performance review in each business division to evaluate and improve on our processes with the aim of delivering the very best results for our clients.
We proudly offer a full-brokerage service, yet both sellers and buyers also have a part to play in a smooth and well executed process. Since 2010, we have been continuously educating the market on best practices on both sides of the fence to ensure a level playing field and to foster the environment for sellers and buyers to successfully come together to achieve their common goals: participating in successful business transactions.
A topic which has not received much public focus is that of what to do during the process of selling your business. It might surprise you to learn that as competent and professional as your broker may be, there are still many things you can do to improve the likelihood of a sale.
1. Getting off to a Good Start
First impressions count, be that with your broker or a buyer. Having a solid business with plenty of growth potential is one thing, but being a seller that a broker and ultimately a buyer will want to deal with is completely different. A broker will work closely with you throughout the sale process, and a buyer will work closely with you post-sale, so putting your best foot forward with both will help greatly when building trust in these key relationships.
Some basic advice applicable through the entire sale process:
- Make your availability known
- Turn up on time for calls/meetings
- Be honest and open throughout
- Be patient – only you know your business inside out at the outset
2. On-boarding
On-boarding can go one of three ways: list straight away, work on a few items and come back or undertake a full 6-12 month exit plan. Your broker will be able to give you the best advice for the business, but ensure that you only move forwards if this is the best advice for you. Most competent brokers work on a contingency only basis, so respect their time as they do yours and only engage if you are confident in their advice and strategy to get your business sold. While you know your business inside out, a competent broker will know the market inside out, so trust their opinions on valuation and timing.
Any advice and strategy outline is usually easy enough to verify by doing a little research. It should become apparent very quickly if a broker is quoting a quicker than expected sale timetable or under/over-the-odds sales multiples. Brokers charging very small commissions or with few publically available listings can also be seen as a red flag. Read here for a full list of broker checks before engaging.
Once you are ready to sign and be on-boarded, consider the time you will need to transfer key knowledge from you and your team to the broker. A broker (as a minimum) will require a questionnaire and a set of complete financials from you, as well as some time to go over follow-up questions and basic due diligence items pre-sale. If your books are in order, set aside 8 hours over a few days to complete this. If not, clear your diary and get ready to do some hard work. Your broker should always be there to help and support you, provided the effort goes both ways.
3. Honesty, Foresight and Openness
The days of site flipping have long gone and from the dust, a new breed of brokers has emerged. In 2015, the experience you will have with an online business broker should be similar to that of a reputable offline business broker: professional, reliable and ethical. These characteristics are also expected of a seller in order to proceed through a successful sale. Here are some quick tips on each topic to help you along the way.
- Honesty: due diligence will be carried out by a buyer. Rarely will any stone be left unturned, so by omitting or under/overplaying information you will be harming your own sale. A buyer only needs one reason to walk away from a deal. By entrusting key information to your broker early on, a strategy can be formed to mitigate any potential issues and the possible effects on the valuation of your business.
- Foresight: share any industry/niche specific information with your broker. Again, this can go a long way in mitigating any future issues that a buyer may get concerned over (i.e. new competitors, changes to regulation, etc.)
- Openness: should you chose a competent broker with formalized processes, your data is safe. Trust that they will act in your best interests and protect information that should be protected, while giving buyers enough to get on-board with the valuation. If you have any concerns over this, discuss it up-front before your business is listed for sale.
4. During the Sale
The most interesting seller behavioral patterns can be observed during the sale itself. By setting your expectations clearly up-front, a broker should be able to avoid most of these playing out, but just to be certain:
- Respond to Q&A in 24 hours or if you can’t, say why and give timeline (avoid impromptu vacations);
- Run the business as stated in the prospectus, discuss any major changes with your broker before you do them. Try to keep the ship steady: do not lose focus and do not attempt to artificially increase traffic/revenue (e.g. with fire sales);
- Notify your broker of major positive or negative changes in customers, traffic, financials, legal issues, etc.;
- Don’t contact buyers directly or be drawn into a conversation on valuation/offers without your broker. If you are approached, tell your broker;
- Prepare for buyer calls, especially if the business has seen little of your focus in recent times. Set aside some time to prep with your broker on a pre-call;
- Do not talk about the sale to third parties or employees until you have certainty over the sale; and
- Shift original price expectations with no underlying reasons.
While many of these points seem basic, our brokers work tirelessly to communicate them to sellers to ensure small things do not affect the valuation in a big way.
5. Offers and Execution
Provided you follow the steps above, have a good business and a competent broker, offers will materialize. The growing nature of the industry and the exponential rise in buyers means that demand for decent businesses is ever increasing – FEI adds roughly 250-500 new qualified buyers per month.
When offers come in, it is important to discuss them in detail with your broker and key stakeholders. It is important to look at the offer in context of your own situation, that of your stakeholders, your business, the employees and the other offers also presented. The highest price may not have the best terms, especially when factoring in the aforementioned considerations. Your broker should be able to give you a good feel for which offer is strongest and which you should take. Negotiation is key and should be handled by the broker on your behalf. Do remember that an experienced broker should have already pushed a buyer close to their limit by the time an offer is presented, so do not be surprised if there is not too much room to move – if there is, push your broker to do their job.
Being a prudent seller, you should have assembled a legal counsel by now. If not, do so quickly to not lose deal momentum (use the due diligence period to do so). A Letter of Intent usually has few legally binding clauses, so you may wish to reserve your counsel for the drafting of the Asset Purchase Agreement and transfer only. A competent broker should be able to provide a template to work from – do not rely on a buyer’s contract, lawyers or escrow process. Lean on your broker for guidance on all of these points.
Again, when accepting offers, participating in due diligence and executing the deal, remember the 4 key rules:
- Make your availability known
- Turn up on time for calls/meetings
- Be honest and open throughout
- Be patient – only you know your business inside out at the outset
6. Post-sale
Often an afterthought, the training and post-sale obligations are becoming more and more important as deals become more complex and financing more prominent. Holdbacks, earn-outs and financing payments can all be contingent on certain elements being completed after the cash consideration is in your bank, so do not lose focus. Being helpful, honest and generally available can go a long way in mitigating any post-sale issues. No broker can claim 100% of deals are issue free, so go into this phase on the deal with your eyes wide open. A little help can go a long way and your broker should stay on top of issues if and when they arise – their compensation is linked to the full consideration so make them work for it.
Many of these points may seem obvious, but following an in-depth quarterly review, our team felt that there was no harm in reiterating these points for the benefit of both sellers and buyers. By maintaining the three-way trust, integrity and helpfulness between the seller, broker and buyer, there is a far higher chance of success for all parties.