Business Sale Value Maximized by Skilled Prep, Packaging, Process Execution

It’s a shame. Business owners just don’t understand that how a business is sold has as much to do with the eventual value obtained (“sale value”) as the characteristics of the business itself. They naively think their business has a certain value and all they need to do is start talking to buyers. They think it’s like selling a home. It has a certain value and as soon as the right buyer comes along, a deal will get done.

Nothing could be further from the truth. It’s hard to explain why, but I’ll try.

1. Business value is much more subjective than real estate. You can’t go and get definitive comparables for businesses. The packaging and process play much more critical roles when selling a business.
2. The right buyer for your business is much harder to find than a home buyer. If it’s a sizable business, the best buyers are scattered all over the world. And because the value of a business is highly influenced by subjective factors, it’s absolutely critical that you simultaneously court multiple motivated buyers. This does not happen without a lot of specialized knowledge, skill and hard work.
3. You think a home has a lot of potential deal killers? Try selling a business. A skilled M&A advisor is essential for maneuvering through the land mines and getting the right deal closed.
4. Selling a business is a sales process. Without good comparable sales data, it becomes a negotiated process. It’s about sales. It’s about persuasion.
5. Business buyers tend to have a much higher level of business and financial acumen. They’re shrewd, intent on buying low and outnegotiating their adversary on the deal terms. Only by matching wits and knowledge of the art of the deal can the buyer’s representative extract a deal that maximizes value for the seller.

Ignorance of these facts plays out every day. I talk to many business sellers who just don’t see the light. They try to do it themselves or delegate it to their accountant. Even when the seller thinks it worked well, money’s left on the table. Nothing to do with ignorance or incompetence, it’s just that selling a business is complex. There are a lot of moving parts and many business owners and advisors don’t quite realize it. They think that because they’ve been tangentially involved in a few deals they can run a process and manage it effectively. Nothing could be further from the truth.

Selling a business for maximum value is the domain of the specialist. Business owners fail to hire one at their own peril.

The ignorance also plays out in the decision to get the business appraised. A deal-maker, such as a skilled M&A advisor, can estimate value in one-tenth the time for free, and peg it more accurately. Why? Because a deal-maker is out there every day.

Not sure the deal-maker’s estimate is accurate? Ask him/her to circulate the deal, blindly, with buyers he/she thinks are good candidates. In a matter of days, he/she should be able to come back with ballpark offers. Get it appraised by an accountant or full-time appraiser? You get a $4,000 pile of paper that, at best, hinders decision making. It’s like the MBA who can’t think himself/herself out of a wet paper bag. No use to anybody.

Business sale value can be summed up with the following equation:

Sale Value = Enterprise Value + Packaging + Process + Deal-Maker Skill

Enterprise value is the innate value of the business. It’s the basic value it could be sold for by the do-it-yourselfer and/or the novice business broker, if they can sell it at all.

Packaging is putting together the deal book and supporting documents. Skilled packaging alone can make the difference between a sale and no sale.

Process includes both process design and execution, and it’s about locating the highest and best buyers and working them all at the same time. It’s garnering negotiating strength for the seller and working the buyers against one another.

Deal-maker skill is the special sauce. It’s the experience, skill and knowledge of the individual running the process and taking it to closing. Make sure your deal-maker is one who lives for the hunt and thirsts for the kill, someone who is comfortable around everyone and intimidated by no one, skilled at chitchat but whose every word is designed to orchestrate the process to a knock-it-out-of-the park deal—closed and with the cash in the bank.

Want to sell a business for maximum price, run a process that maximizes the odds of a timely close, and reduce wasted time and money?

• Hire a specialist, an expert in seller representation.
• In choosing a firm, ask your peers for references. Talk to your advisors. Search the Internet.
• In vetting candidates, search the Internet. If the firm you are considering has unhappy customers or more than a single Better Business Bureau complaint, move on. And for darned sure, don’t fall for the seminar-based M&A firms that are merely up-front fee collection scams!