The number of investors making unsolicited offers has grown dramatically in the past eight years. A humming economy, recent tax breaks for corporations, and strong stock market returns mean that investors have more money to throw around.
But how can business owners negotiate the best deal possible when acquirers come knocking? The EBITDA (earnings before interest, taxes, and depreciation) paid to acquire $10 million to $30 million revenue businesses has reached heights not seen since before the Great Recession of 2008.
Investors are making business owners financially attractive offers that are hard to resist. However, signing the first and only deal you receive might not be the best way to maximize your company’s value; you could lose money by doing so.
There are several ways to go about selling a business. You need a well-thought-out plan and a strong team of advisors to truly make the most of unsolicited offers. Here are a few steps to take when you receive an offer for your business.
1. Don’t Make A Premature Announcement
Receiving an unsolicited offer can be exciting. However, you shouldn’t go about announcing the opportunity until you’re certain the deal will go through.
As a business owner, first ascertain whether you’re ready to sell. Run the offer by the stakeholders, and think through about how the sale will affect your financial future.
Don’t let the excitement of the opportunity overwhelm you; let it wane before making the news public. Take time to carefully review the offer, do your research, and put a plan together before responding.
2. Learn About The Buyer
While it’s common for acquirers to make their offers through intermediaries, it’s easier these days to find out who the offers come from with a quick search on the internet or local business directories. A search on Google can quickly reveal the party making the offers, history of buying firms like yours, their reputations, and experiences working with businesses like yours.
Researching who the offering party is, studying the latest business data and regulatory activities in your industry will provide you with insights into why a buyer made an unsolicited offer.
3. Don’t Agree To A Deal Too Early
Some buyers will try to snatch up your company at a moderate price by refusing to allow a competitive bid. (This is known as a proprietary deal.) These types of buyers will require that you sign a letter of intent (LOI), which will give them access to your financial accounts and time (typically 60 days) to do their due diligence. Meanwhile, other potential buyers will have moved on during this period, which can significantly impact your selling price.
The more time the buyers have to conduct due diligence, the lower they bid knowing that other potential buyers may have changed their minds. While you will have to sign the LOI at some point during the sales process, you shouldn’t do so until you have interviewed all the interested buyers. That will enable competition and allow you to sell to the highest bidder.
4. Determine Your Company’s Valuation
Knowing what your company is worth is critical if you want to sell at the highest price possible. You may employ the services of a valuation expert to help determine the value of your company. That will provide you with a framework with which to negotiate and help you price the business appropriately.
5. Consider Your Financial Goals
Treating personal financial planning as an afterthought is a mistake that most sellers tend to make when negotiating terms of sale. Instead of tying their financial goals to the contract, they make the sale first and deal with personal finances later.
It’s always best to consult a financial adviser to ensure that contract terms are unambiguous and benefit your financial objectives. Is installment or a lump-sum sale good for your tax situation? Should the business be sold for its assets or stocks? Should you stay to help with the transition or walk away after the deal is signed? These are a few questions you should ask before going through with the deal to ensure that your financial and investment needs are met.
6. Hire A Professional Business Broker
It’s only natural as a business owner to want to try and sell your company on your own. Many take the DIY route to avoid brokerage fees. While you’ll get to keep all the proceeds if you close the deal without the help of a broker, studies have shown that a professional advisor can add up to 15 to 20 percent to the selling price of a company. That more than offsets the 5 percent that brokers usually charge.
Business brokers have plenty of tools and resources to help maximize returns on sale. Most M&P professionals, for example, have a large pool of buyers they can tap into to set up a competitive bid for your company. The presence of other interested buyers will force the offering party to step up their game or risk losing the bid.
A professional business broker is also there to protect your interests. There will be times during the sales process when things will go awry, as they tend to do, and it’s the job of a business broker to get the negotiations back on track and get everyone to agree to a deal
By working with a brokerage firm like Raincatcher, you’ll get the professional help necessary to make the sale a success. Whether it’s preparing to sell, creating a business valuation, or discussing when is the right time to sell your business, our team is always available to point you in the right direction and help you realize your goals. Contact us now for a free valuation and discuss ways we can help you to maximize the value of your business!