Your Business Sold

What You Need to Know When Selling a Business

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Managing Your Business Value Expectations

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One of the jobs of a business broker is to secure a pipeline of clients and to manage their expectations on value.

Like Estate Agents, some brokers may be tempted to over value a business in order to sign up the client. Business owners can be seduced into believing these sometimes outrageous values.

If you are thinking of selling a business and are seeking to employ an adviser DO NOT SIGN UP with any broker there and then no matter what pressure you are under to start the selling process or simply get the salesman to leave your offices! Ask for a copy of their business terms and conditions and take them away and study them carefully BEFORE signing!

To sell your business, a broker should not need more than one side of A4 listing conditions and fees. The terms should cover what they will do for you, the process and the fees. Do not sign an exclusivity clause. (see articles: exclusivity clauses) as a broker could makes lots of cash from simply sitting on businesses and waiting for you to find a buyer directly at which time they sue for their fees and win!

A genuine and focused broker should not need more than one side of A4 to explain in plain and simple English what the ‘contract’ is between two parties.

Sometimes buyers are convinced by others or, convince themselves that their businesses have a value far in excess of reality. .e.g. ‘My mate in the pub says….’’. My nearest business friend says..” Guess what? Friends are unlikely to tell you bad news and more importantly are less likely to be buyers.

One of the key drivers in understanding value is understanding what is really for sale and the real trading profit after adjustment for costs that a typical buyer will not have to carry forward. We need to understand what the business comprises of e.g. buildings, equipment, people and stock and what costs the business incurs that are not directly attributable to trading; bear in mind that some businesses even run aircraft as an expense!

If after deducting these costs their is little or no profit then valuation has to be argued on an alternative basis an example of this would be for an internet business where the site get masses of visitors but where the business is not converting them to sales. In the hands of another leader the business may do better.

Sellers should ask themselves a simple question..... 'how much would I pay for this business?'

For further ‘practical’ advice on selling your business download the popular ‘Real world guide to selling a smaller business’ by author Barry Parsons. Remember selling your business may be a one off life transaction and will certainly be life changing … read up on the basics in this popular download.

I look forward to assisting with selling your business.

Exclusivity Clauses

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Business brokers and advisers should expect that a seller is employing only their services but should they expect a written exclusivity clause?

In the opinion of Hyde House the answer should be a firm no!… unless such exclusivity gives the seller the right to terminate the agreement on the grounds of:

• Lack of activity… No buyers have been introduced
• Lack of project management… There is no evidence that the broker is marketing the business.

In other words if the client is unhappy with the service he should be able to agree an exit.

Some brokers rely entirely on advertising rather than pro-active marketing to sell a business and therefore why should they be granted exclusivity for sale? Why should the fee be based on the proportion of the value? It costs very little to place an advert.

I am also aware of brokers that make significant monies through pursuing clients that unwittingly sign up to a longer- term exclusive period and after becoming frustrated by lack of progress find a trade buyer themselves only to find that after completion the broker turns up and demands a full fee and legal expenses.

In conclusion:

• Grant exclusivity to the agent but not by contract
• Do not engage anyone else or attempt to sale the business yourself
• Ensure the broker knows what you expect
• Hold regular updates
• Tell the broker if you are not happy
• Allow the broker to demonstrate the actions he is taking on your behalf
• If you remain unhappy agree a friendly exit – the broker should be paid time and materials for any demonstrable work undertaken

For more practical help and advice download our selling your business guide.