You’ve decided to sell your business. Before you begin dreaming of a pile of cash, you need to do a lot of planning. Perhaps the biggest question to address is whether or not to use an intermediary. Brokers are go-betweens who can theoretically work with businesses of any size. In practice, however, they typically work for small businesses run by owner-operators. For larger businesses, investment bankers are much more typical.
Small businesses represent the largest swath of the M&A market, so we’ll focus on M&A advisors for this blog.
Considerations When Selling a Business
Selling a business is a massive undertaking that includes plenty of preparation, paper pushing, and negotiation. You’ll need to assign an accurate value and work diligently to move the transaction to completion. This can be a time-consuming job that takes time away from running your own business. It’s also inherently stressful.
The Role of the M&A Advisor
An M&A advisor can take some of the stress out of selling a business. They free your time to focus on running the business. They can also add considerable value to the transaction in the following ways:
– They may have access to and knowledge of a pool of buyers who may be interested in your company.
– They serve as a buffer between the parties and can help with negotiations.
– They understand the process, so can set your expectations and help prepare you for what’s ahead.
– They keep the transaction moving forward by guiding the process.
You Need the Right Advisor
There’s a flip side to all of these benefits. Hiring the wrong broker can cost lots of money and offer little value. A bad broker can even tank the deal. It’s easy for a broker to sign onto the deal, put the business on the market, then do nothing. Brokers who demand large upfront fees are more likely to do this, so fee structure can tell you a lot about how much time and effort a broker intends to invest.
With the wrong broker, your business could spend months on the market with few bites. This scares off buyers who wonder why the business hasn’t sold yet. So don’t just hire the first broker you find or the one with the flashiest website and best sales pitch.
Making the Decision
Don’t make the decision to hire an M&A advisor based on the sales pitch of a broker. Instead, critically evaluate your needs. Make a list of what you need, and then decide. As part of the interview process, ask the broker how they will value your business and by what methodology. Then get clear details about how they intend to support the sale process. Then put it all in writing. A good broker won’t object, but a bad one might object to too many expectations spelled out in a contract.
The right broker is worth their weight in gold. So spend some time finding this rare treasure. Check references and trust your gut.
