23 Oct Sale Price Maximized by Skilled Prep., Packaging
It’s a shame. Few business sellers know that HOW a business is sold has as much to do with the eventual price obtained as the characteristics of the business itself. They naively think their business has a certain value and all they need to do is find a couple buyers. They think it’s like selling a home. It has a certain value and as soon as the right buyer comes along, a deal will get done. Not true. Here’s why.
- Business value is much more subjective than real estate value. You can’t go and get definitive comparables for businesses. As such, the packaging, process used, and skill of the dealmaker or agent play much more important roles when selling a business.
- The right buyer for your business is much harder to find than a homebuyer. If it’s a sizable business, the best buyers are scattered all over the world. And because the value of a business is highly influenced by subjective factors, it’s absolutely critical that you simultaneously court multiple motivated buyers. This does not happen without employing special knowledge and skill (and hard work).
- Selling a business is a sales endeavor. Since there aren’t good comps for businesses, and the valuation methodology is not well understood, the process of getting a top price is about sales and persuasion.
The market is filled with business sellers that go about selling in a sub-optimal, do-it-yourself manner. They use ad-hock methods that ignore the truths listed above. This is not to say that deals are not getting done. They are. Typically, it’s after the seller spends years wanting to sell, and trying to sell, and then finally agrees to a deal well below what was otherwise possible.
Okay, call these words self-serving if you wish, but selling a business for maximum value is the domain of the specialist. Business owners fail to hire one at their own peril. Their inexperience also plays out in the decision to get the business appraised. A dealmaker, such as a skilled M&A advisor, can estimate value in one-tenth the time, for free, and peg it more accurately. Why? Because the dealmaker is out there every day, working on real deals and seeing what buyers are actually paying.
Not sure the dealmaker’s estimate is accurate? Ask him or her to circulate the deal, blindly, with buyers the dealmaker thinks are good candidates. In a matter of days, he or she should be able to come back with ballpark offers. Rather get it appraised by an accountant or full-time appraiser? You get a $5,000 pile of paper that, at best, caps the potential sale price.
Business sale value can be summed up with the following equation:
Sale Price = Enterprise Value + Packaging + Process + Dealmaker Skill
Enterprise value is the innate value of the business. It’s the basic value it could be sold for by the do-it-yourselfer and/or the novice business broker, if they can sell it at all.
Packaging is putting together the deal book and supporting documents. Skilled packaging alone can make the difference between a sale and no sale.
Process includes both process design and execution, and it’s about locating the highest-offer and best buyers and working them all at the same time. It’s garnering negotiating strength for the seller and working the buyers against one another.
Dealmaker skill is the “special sauce.” It’s the experience, skill and knowledge of the individual running the process and taking it to closing. Make sure your dealmaker is one who lives for the hunt and thirsts for the kill. Someone who is comfortable around everyone and intimidated by no one.
Want to sell your business for a maximized price? Run a process that maximizes the odds of a timely close? Reduce wasted time and money? Hire a specialist – an expert in seller representation. Hire Acquisition Advisors. Call me, David Perkins, at 918-748-7995 today.
Whatever you do, don’t pay a large, lump-sum, up-front fee to one of the seminar-marketed M&A firm scams!