How To Sell Your Business, Part Five — Generating Qualified Prospects for Your Business

by Greg Caruso,  CPA, CVA, Partner at Harvest Business Advisors

Once your business is listed, you’ll need to disseminate the information to the right people in order to sell the business. There are many sources of buyers, and we explore some of those here.

Trusted Advisors   Sometimes your attorney or accountant will have a likely Buyer.  Professional advisors are a good source for referring Buyers. Certainly, talk to that Buyer but at the same time keep in mind that your attorney or accountant is not a salesperson. You will have to do some of the work but it will be worth it. Your advisors are a great source of buyer referrals.

Teaser ads in major local newspapers  These can be very effective particularly for finding tradesmen, new Americans, and corporate managers.  A typical ad contains very little information but it is focused on getting the phone to ring.  Some examples are:

Pizza Shop Very profitable. Owner anxious to sell. 444-444-3333

Florist with Real Estate. Great location and established name 333-333-4444.

This can be effective for businesses larger than you may think.  Harvest Business Advisors sold a three million dollar business from a teaser ad.

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Internet Listings  Primarily www.BizBuySell.com ,   www.bizquest.com, www.businessbroker.net and www.mergernetwork.com, and others.  This is effective for generating leads if the financial summaries fit the recommended valuation rules of thumb and it is the best source for corporate managers and corporate sales people.  You can also reach competitors who have set an automatic email for anything in their industry.    With Internet listings you need to list a little information about the business to indicate scale and industry and really focus on the numbers in order to generate calls.  The ratios must work in order for the phone to ring so this is an excellent reason not to overprice the business.  If necessary,  make aggressive adjustments in your cash flow and clearly point them out in your package in order to generate leads through this source.

 

Cold Calling and Direct Mail   If a competitor, private equity group, or other business is a likely Buyer, both cold calling and direct mail can generate responses.  While the response rates are generally low, again it only takes one Buyer.  You can greatly assist your broker by providing trade association lists and contact points to help them generate an inclusive list of prospects.  Research to identify potential buyers is a very important and time-consuming part of the work when this technique is appropriate.

 

Suppliers and Jobbers  In some industries, suppliers and other people who work regularly with many companies may know people interested in buying businesses.  Obviously, this does not work if maintaining confidentiality is important to you.  This is pervasive among liquor stores.

 

Brokerage  According to industry statistics, only 30% of Buyers purchase the type of business they first start calling on, and this number increases with smaller businesses.  This is one way brokers add value.  Brokers can take callers who decide they are not interested in the first business and move them to another businesses they have for sale.  A broker with many different businesses can move a prospect through many opportunities.  This is particularly important if your business is unlikely to generate phone calls directly either because of the business type or because of business conditions.

Intermediaries, Investment Bankers, and Merger and Acquisition Specialists are all brokers and advisors with different networks and abilities.  As the transactions get larger the advisory aspect of a broker relationship increases in value to the Seller.  It is likely that good advice will increase the final value by at least 15% above the original starting value.  It may not be worth paying a consulting fee on a $100,000 sale but for a ten million dollar business, that is a whole different ball game!

In general, brokers work with businesses up to about $1,500,000 in value; intermediaries handle businesses worth between $1,500,000 to $7,500,000; and investment bankers and merger and  acquisition specialists manage the $5,000,000 to $10,000,000 on up crowd.  Still, there is a lot of overlap between the groups at the edges.

Co-brokerage  Many brokers co-broker with other brokers they trust.  Since confidentiality is so important, a good broker will not send your confidential file to just anyone.  The prospect must be qualified first.  A good broker is always concerned with respecting and protecting the Seller’s confidentiality.  Every broker keeps a list of active Buyers which makes co-brokerage a useful technique particularly for smaller profitable businesses.

 This is part of a series of posts focused on “Selling Your Business”.

 

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