Selected
Article:
Buying
or selling a business?
It’s
not as simple as posting a listing, experts say
by Jack Criss
DBJ Executive Editor
Selling
or buying a business can represent the end of something
or the beginning. It is an emotional, trying, often even
costly decision that should be handled with extreme care
and deliberation. Timing is everything and most agree that
third parties absolutely must be brought into the process.
“I tried selling the company I had grown from the
ground up by myself,” one business owner, who chose
not to be identified commented. “It ended up being
a huge mistake. Endless back-and-forth battles, disputes
and, in truth, I had overpriced my operations because of
the money I knew I needed to retire on, not on the actual
value of the business.”
Warren Taylor, the owner of Sunbelt Business Brokers in
Jackson, says that is a common mistake, one of many. Sunbelt,
which has 300 offices in the United States and many others
throughout the world, specializes in acting as a liaison
between buyers and sellers of business.
“A seller often doesn’t understand the complexity
and difficulty of putting a business up for sale,”
Taylor says. “It’s ten times harder to sell
a business than, say, a piece of property, for example.
If you’re looking at property and have it appraised,
buy it and then things go south, you can usually still get
a majority of your money back. Not so with buying a business.
You could possibly lose everything.”
There are many reasons for buying or selling a business,
Taylor adds, ranging from boredom to retirement to health
reasons.
“We have found that the number one reason for selling
a business is burn out,” Taylor says. “Of course,
retirement and health ranks highly also as does the owners
who are losing money and think that can make up their loses.”
That seldom happens, he adds, and is a bad reason to sell.
On the other hand, Taylor says that buyers tend to be those
who are looking for change or who wish to start over.
“We get an awful lot of buyers who have been laid
off or lost their job, or have gotten a little older and
realize that it’s difficult to just go out and find
new employment,” Taylor says. “So, in effect,
many of these types want to buy themselves a job when you
get down to it. He or she might have received a parting
package from their former employer or have something saved
up or in a 401K and wants to buy a business. We also deal
with a large number of people who get tired of their present
job or of being on the road and want a change.”
Is a certain time better than another to buy or sell a business?
Taylor says not really.
“The economy has very little to do with it,”
he says. “We try to get a fair price—maybe not
the one originally wanted—but no one is trying to
take advantage of the other party. It’s all very equitable,
especially with a third party involved.”
Taylor
says that, legally, the broker always represents the seller
in the transition process. “We secure the listings,”
he says. “Then, with the help of the seller’s
CPA, we analyze the financials to determine exactly what
the business is worth. We usually recommend an unbiased,
third party evaluation done.
“A major problem,” Taylor continues, “is
that the seller wants an amount that is simply not realistic.
The fact is the buyer looks at actual figures not the lifestyle
needs of the buyer. As brokers, we also put together a marketing
package depending on the size and complexity of the business
and that determines the price, as well.”
Taylor says that, when a deal is being considered, the potential
buyer signs a confidentiality agreement and is then interviewed
by the broker to ascertain what business might be best matched
to his intentions and goals.
“If we find a suitable match that the buyer likes,
we then set up a meeting with the owner to answer questions,”
Taylor says. “Then, at some point, we ask the buyer
to make an offer.” Taylor says Sunbelt earns its profit
by charging a percentage of the deal.
Taylor says brokers should always be used in the process
of buying or selling. “Usually, if you own a business,
your banker, accountant and attorney are all going to tell
you that your business is worth a lot more than it actually
is,” Taylor says. “I’ve never seen an
exception to that rule. Conversely, a buyer’s accountant
or attorney will often say the the business is worth a lot
less. That’s why an objective broker is really needed
to ensure fairness and accuracy on both sides of the coin.”
Statistics show that a broker will typically land a seller
about 20% more for their business on average that what that
individual would get on their own.
Tips for a smooth, fast sale of a business include: Place
a reasonable price on your business; Keep a “business
as usual “ policy, i.e., don’t do things differently
to impress a potential buyer; Make sure that financial and
accounting “housekeeping” is done prior to going
to market; Use a business intermediary who knows the market;
Eliminate any possible surprises—resolve minor legal
or government issues before attempting to sell; Be sure
you’re serious and committed to selling.
Questions to consider before buying a business include:
Why are you considering it; What is your time frame for
finding a suitable business; Are you open to different opportunities
or are you looking for a specific business; Have you set
aside an amount of capital that you are willing to invest;
Do you really want to go in business for yourself; Are you
the decision maker or are their others involved.
“It’s obviously a big step,” Taylor says.
“Whatever side of the table you’re on, you must
be sure and you must be committed. It’s that simple
and it’s that hard.” DBJ
