How to Sell Your Business – Business Buyers; What about Competitors?

When looking to sell your business it is important to identify who your proper buyer is likely to be.  Business brokers and business intermediaries for main street and middle market businesses generally know what type of buyer will pay the most.  Many sellers think of competitors when they go to sell.

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

Competitors.  Some businesses have natural efficiencies that come with size.  For instance, route businesses such as package delivery become more and more profitable the shorter the route between stops.  This creates a logical Buyer in a competitor because of the potential for synergy and economies of scale.  Location dependent businesses buy competitors to obtain more quality locations.  These Competitors are also known as Strategic Buyers.

Competitors may be the only Buyers for large complex businesses, especially those with low profits, because they can determine if “their way” of performing will increase the operating results of the existing cash flow.  Yet, if there are not natural synergies, competitors do not typically pay the highest price for most well run businesses because they already have a business system and are not willing to pay a premium to learn yours.

Truck Repair Blues

A large specialty truck sale and repair service company has seven locations in four states.  The owner had started the business twenty years earlier out of his spare bedroom.  He had grown the business to $45,000,000 in sales by under pricing and out hustling competitors every day.  The business is extremely complex with multiple product lines including new product sales, product service, and a startup division which is venturing into a completely new market.  He has a competent but homegrown management staff who do not have the ability to run the company for a purely financial Buyer.  The Seller has forbidden the intermediaries trying to make a market for his business to contact competitors and suppliers for fear that word will get out and it will hurt his business.  Even after explaining how the list can be very carefully tailored to prospective Buyers with capital, a strongly expressed interest, and a past history of making discreet purchases, the Seller still will not allow the intermediaries to approach anyone in the business.  No sale is possible under these conditions. 

Related businesses, not competitors.  For example, a graphics company might buy a printing business.  Or a concrete pipe company might buy a trucking company.  This concept is known as bounce-back synergy.  In these cases, one business is very dependent on the other.  This is a longer shot than many of the others but they do occur.  It also lessens the risk of giving all your detailed information to a competitor who never intends to buy you.

In all cases when thinking about selling your business think about who will pay the most for your business and how do you best interest them in your business.

Gregory R. Caruso, JD, CPA, CVA
Harvest Business Advisors
609-664-7955

gcaruso@harvestbusiness.com

www.harvestbusiness.com

Selling A Business; The Business Sales Process- How to Set an Asking Price For Your Business

All smart Business Brokers, Business Intermediaries, and Investment Bankers know, when a selling small business  you must have an asking price in order to get business sales activity.  Inexperienced Buyers absolutely want to know the business asking price.  If the asking price is too far from the business valuation pricing rules of thumb, they will tend to say they are not interested even if there hesitation really is because of price. Americans expect to negotiate, but only a little.  They tend not to want to insult the Seller by offering 50 cents on the dollar.  For this reason, it is important to price a business that is for sale correctly from the start.

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

It is very tempting to price a business high and wait for offers.  Business brokers have learned that they rarely come.  Often when buyers do appear for an overpriced listing it is from someone looking to steal a business on the cheap who puts in very low offers on many businesses waiting for a desperate business seller to accept their offer in frustration..  Believe me, once you commit to sell your business, the process of selling your business seems to take forever even when it is progressing well.  When no one is calling, it really drags out.  Don’t overprice your business and, later, fall victim to this low-ball business buyer strategy.

There are buyers for almost all profitable businesses but there may be only two or three in a given market area.  You need to get these buyers interested. Proper pricing will do that.  We recommend that you price the business no higher than 10% above the high end of reasonable. This will give you negotiating room while presenting an attractive offering that will encourage prospects to continue looking at your business.

If, after 90 days of proper marketing and prospecting (ads are appearing in the right websites, direct mail and selected calling to the right people), you do not have serious prospects working on an offer then you should seriously consider cutting the asking price.  The market is telling you something.

If you are in a hurry to sell, price the business near an average price based on your valuation. Make sure you still have some negotiating room in your asking price.  Buyers will almost always find a problem and the ability to give a little back solves many problems.  If possible, always keep a few chips in your pocket to use to solve problems all the way through settlement.

Under priced?

One of my first listings was a small daycare center.  The Seller had made her decision to sell and was now in a rush to get it done.  She had been marketing the business for the past two months herself.  She did not have a huge investment and just wanted out so, because she wanted a quick offer, she had priced the business at about 75% of the fair market value.  Her one prospect proceeded to negotiate her down to 60% of the fair market value and still chose not to close.  Prospects assumed something must be wrong with the business for it to be priced so low.  We immediately suggested raising the price to 95% of fair market value.  This was low enough to generate contacts from real prospects and gave us money with which to negotiate with.  The business was sold and settled at 85% of fair market value in 60 days.

Gregory R. Caruso, JD, CPA, CVA
Harvest Business Advisors
609-664-7955

gcaruso@harvestbusiness.com
www.harvestbusiness.com

Harvest Business Advisors works with contractors, engineers, distributors, manufactures, professional and service companies as  business brokers or intermediaries, valuation experts, and succession and exit strategy consultants in Maryland, Pennsylvania, New Jersey, and Virginia.

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