10 Questions Sellers Most Often Ask
How long does it take to sell a business? Every situation is unique. Today, on average, it takes a year.
How do we keep things confidential? Selling a business is not like selling real estate; we cannot put up a big sign out front. The goal is to build the largest buyer group possible without letting anyone know the company is for sale. In the last five years, 75% of the companies we have sold have been to buyers already in our database. Every buyer has to sign a non-disclosure agreement and provide a balance sheet before finding out your company is for sale. We go to great lengths to maintain confidentiality, and if we have any questions about a potential buyer, we let the seller decide whether to proceed with that buyer.
I am not going to say that in 130 transactions, the word has not gotten out a few times, but we have been able to quickly manage this issue when it has arisen.
What will be required of me during the process (the sellers)? Every deal is unique, and the depth and accuracy of your records and systems will have a big impact. In general, at the start, a few hours of your time will be needed to provide information for the marketing package. You will then need to meet 5 to 7 buyers for an hour to get an offer you would accept. After you accept an offer, the buyer will conduct a deep due diligence review, and depending on your records, that could take 8 to 24 hours of your time. After the due diligence, the contract phase starts, and that, depending on the lawyers, could take another 8 hours of your time.
What will happen to my people after the sale? Each buyer group will have different needs for your staff. Strategic buyers will likely already have an operation in place, and integrating your enterprise into their operations, they will not need all, if any, of your people. Private equity buyers, depending on their plans, will likely need some but not all of your people. The individual buyer will be your best chance to keep your staff employed, as they are purchasing a going concern and will need your full staff to operate the business.
How long will I have to stay after the sale closes? Known as the transition period, its length will depend on how integral you are to the enterprise. My general suggestion is 90 days, with a gradual reduction (4 weeks at 4 days per week, 4 weeks at 3 days per week, and 4 weeks at 1 day per week). Please understand that you are there to transfer tribal knowledge. You will technically be a consultant and not covered by the company’s insurance.
Plymouth Financial Group www.plymouthfg.com 610-828-2480
How much is my business worth? Almost impossible to say without a deep dive into a long line of issues. A few of the big ones are customer concentration, hard asset value, staff, business model, and micro- and macroeconomics. The other big item is the company’s financial performance: does it generate enough cash flow to cover the purchase price or a market-rate return?
Who is buying my type of business? The key to any sale is the right buyer, and today the market is filled with three types of buyers.
First – Owner / Operator – This group is made up primarily of 45-plus, X-Corporate types, who have been let go and are looking to buy a business to replace their income.
Second – Financial Buyers – Private Equity and Private Investments groups have what they call “dry powder” to invest, driven by strong returns from the recent stock market surge.
Third – Strategic Buyers – Other companies looking for synergistic fits. With the downturn in most industries, many large companies are looking to “buy sales”, finding it cheaper to buy sales than build sales.
Each of these buyers is looking for different things, and most often, the buyer group that makes the purchase surprises the seller. Being prepared for all three buyer groups from the start is one of our keys to success.
Don’t you think X, Y and Z would be the best buyers of my business? Most sellers tell me early on that certain other enterprises would be great buyers of their business. I wish it were that easy. Historically, when I check the D&B ratings of the proposed best buyers, half have ratings so low that we could never get a deal done. The best buyer will also need to understand the value of an acquisition and be in the market for one. “Best buyers” are often the lowest bidders and have created our biggest confidentiality issues with “best buyers”.
How can I avoid providing seller financing? At the start, we go to great lengths to secure a funding package with a lender to avoid you being the bank. You should know that banks lend based on tax returns. If you do not want to provide seller financing, then your returns will need to show a positive cash flow for the last two years.
What are the steps? You should start early. Speaking with a broker a year or two before you’re ready to go to market will make things much easier and most likely increase your enterprise value.
Why Plymouth – All we do is sell companies like yours. We have a buyer database with over 6,000 potential buyers looking to buy a company like yours. We are approaching 150th successful transactions with companies like yours.