Selling Your Business Yourself? NOT a Good Idea!

The independent business owner who decides to sell is at the threshold of a major process involving the emotions as well as the marketplace. In many cases, the business for sale represents the seller's life work. Being the independent type to begin with--as well as someone who knows about deals and sales--the tempting notion sometimes arises: Why don't I handle the sale of my business myself? Those sellers with similar temptations should first take a look at the steps necessary for the successful business sale--and at the advantages of taking those steps in tandem with the best possible professional guide.


Preparing the business for sale

What looks good or just fine to the seller could make quite the opposite impression on prospective buyers. The weathered sign out front that the seller thinks is "rustic" might strike a buyer as in need of a fresh coat of paint. On the other hand, improvements planned by the seller may be either unnecessary or wrongly conceived. In either case, sellers would be wise to rely on the advice of a business broker--a professional with experience in dealing regularly with buyers and who will have the objectivity required to set the business scene to its best advantage. Of course, preparing a business for sale goes beyond outward appearances. Ultimately, a business will sell according to the numbers. A business Broker can be invaluable in helping the seller provide financial records that are clear and up-to-date.

Pricing and evaluation.

All sellers, naturally, want to get the best possible price for their business. However, they also need to be realistic about the true value of the company for sale and to understand that price is, in fact, dictated by the marketplace. To determine the best price, a professional business broker will use industry-tested valuation techniques, including ratios based on sales of similar businesses, as well as the historical data of the type of business for sale.

Marketing and advertising.

The professional business broker is key to the marketing of a business. He or she will prepare a marketing strategy and offer advice about essential marketing tools. Business brokers, through their data bases of buyer prospects, professional associations and other networks, can get the word out about the business far more effectively than any owner could manage on an individual basis.

Presenting the business.

The professional business broker is experienced in handling the typical objections and negative "readings" many typical buyers will raise. Does the business lack parking space? Is its location less than ideal? The business broker has the skills to balance negatives with positives, or to point out that what appears to be a disadvantage is not always the case. In addition to skill, a business broker also offers the seller convenience. Sellers often fail to visualize the number of buyer calls they would have to field if handling the sale on their own. The business owner working with a broker can continue managing his or her business at the same time the selling process is underway.

Negotiating the business sale transaction.

The business broker will be the most vital advisor to sellers during any stage of the sale transaction. Steeped in knowledge about negotating price, terms, and other key aspects of the sale, the broker will guide the seller each step of the way. During the early stages, while the buyer is still considering making an offer, the broker is the ideal person to follow up and keep the deal running smoothly. Sellers working alone could lose bargaining effectiveness by doing the follow-up themselves.

Mastering the paperwork.

Even though business owners handle mountains of paperwork as a part of doing business, few of them have had training in the specialized contracts and forms required for the sale of a business. The business broker is an expert at sales transaction details. This expertise will help guard against delays, problems, and--that worst of all possible worlds--the "wrecked" deal.

Qualifying buyers.

The business broker will determine the right buyer for the right business, focusing on those prospects who are financially qualified and who are genuinely (or potentially) interested in the type of business for sale. For locating and qualifying prospective buyers, a business broker uses computerized databases to access comprehensive lists of local, national and international buyers--all to increase the chances of selling a business at peak value. And, almost as important, to avoid wasting the seller's valuable time.

Maintaining privacy and confidentiality.

When a business broker is involved in the sale, bringing to the business only those prospective buyers who qualify, it is also easier to maintain confidentiality during the selling process. Until a purchase-and-sale agreement has been signed, most sellers do not want the word to reach their customers, competitors, employees, or even their bankers. A business broker helps by using nonspecific descriptions of the business, by requiring signatures on strict confidentiality agreements, by screening all prospects, sometimes phasing the release of information to match the growing evidence of buyer sincerity and trustworthiness. 

"Confidentiality Agreement - A pact that forbids buyers, sellers, and their agents in a given business deal from disclosing information about the transaction to others."
It is common practice for the listing Broker, to require a prospective buyer to sign a confidentiality agreement, sometimes referred to as a non-disclosure agreement. This is always done prior to the seller providing any important or proprietary information to a prospective buyer. The purpose is to protect the seller and his or her business from the buyer disclosing or using any of the information provided by the seller and restricted by the confidentiality agreement.

These agreements, most likely, were originally used so that a prospective buyer wouldn't tell the world that the business was for sale. Their purpose now covers a multitude of items to protect the seller. A seller's primary concerns are to insure that a potential buyer doesn't capitalize on trade secrets, proprietary data, or any other information that could essentially harm the selling company. A concern of the prospective buyer may be that similar information or data is already known or is being developed by his or her company. This can mean that both parties have to enter into some discussion of what the confidentiality agreement will cover, unless it is general in nature and non-threatening to the prospective buyer.

A general confidentiality agreement will normally cover the following items:

The purpose of the agreement - it is assumed that in this case it is to provide information to a prospective acquirer.
What is confidential and what is not. Obviously, any information that is common knowledge or is in the public realm is not confidential.
What information is going to be disclosed? And what information is going to be excluded under the disclosure requirements?
How will confidential information be handled? For example, will it be marked "confidential," etc?
What will be the term of the agreement? Obviously, the seller would like it to be "for life" while the buyer will want a set number of years - for example, two or three years.
The return of the information will be specified. For example, if the sale were terminated, then all documentation would be returned.
Remedy for breach, or determination of what will be the seller's remedies if the prospective acquirer discloses, or threatens to disclose any information covered by the confidentiality agreement.

Obviously, the agreement would contain the legal jargon necessary to make it legally enforceable.

One important item that should be included in the confidentiality agreement is a proviso that the prospective acquirer will not hire any key people from the selling firm. This prohibition works both ways: the prospective acquirer agrees not to solicit key people from the seller and will not hire any even if the key people do the approaching. This provision can have a termination date; for example, two years post-closing.

The sale of a company involves the disclosure of important and confidential company information. The selling company is entitled to protection from a potential acquirer using such information to its own advantage.

The confidentiality agreement may need to be more specific and detailed prior to commencing due diligence than a generic one that is used initially to provide general information to a prospective buyer.

Tips on Maintaining Confidentiality

Use a code word or name for the proposed merger or acquisition.
Don't refer to any principal's names in outside discussions.
Conversations concerning the merger or acquisition should be held in private.
Paperwork should be facedown unless being used.
All documents should be kept under lock and key.
Important data maintained on the computer should be protected by a password.
Faxing documents should be done guardedly.

Professional business brokers provide all these vital services, and more, for the seller of a business. This is one time where "do-it-yourself" just can't measure up--in terms of money, time, and the general success of the sale.