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Can I sell my business on my own?

Execute Letters of Intent

The short answer is YES. You can definitely sell your business on your own. But, we chose this question as the topic because most business brokers will try to convince you otherwise. We have operated and sold businesses on our own. As such, we can say from first hand experience that the answer is “yes”. We even wrote a step by step guide that you can use to sell your business on your own – how to sell your business.

The more important question

Actually, the question you should answer is “Should I sell my business on my own?” And, if you have an iota of doubt on the answer, we highly recommend giving this article a read. This article will answer another important and related question – “Who needs to help you sell your business?” These decisions will make a big difference in the end result.

How is this article organized?

This article assumes you are looking to get high premiums from the sale of your company. If you are looking for a quick exit and/or liquidation, some of these could be omitted. In that case we urge you to read our article on “How to sell your business fast”

We wanted to create an exhaustive resource that can help all business owners answer this very important and confusing question. As such this article is long. So, for a quick reference we have added this table of contents to help you guide through the article or if you just want to see the points.

Different roles needed to sell your business

To start with, you must understand the different things you need to do sell your business. You must read our flagship resource that will provide you with everything you need to know to sell your business. We have discussed all the roles in detail in that article. As such we will not get into details here. The different roles are marketing, financial, legal and advisory. You may also consider project management as a role, because selling your business is a project. However, this project needs to be executed differently and very discretely as compared to all other projects your company has undertaken.

Delegate roles to your employees

You can bring key employees from your company into the sale process and create your team. However, they have to be trusted implicitly. Any breach of confidentiality can create unrepairable damages. If you have trusted employees that can partner with you for 6-9 months and wear these hats really well, then you have a winning team. However, such resources need to have a lot of experience buying and selling businesses. And, these are all critical roles for the day-to-day operations of the business as well. As such, it will be difficult for them to multi-task. Selling your business is not just an additional project. It is a completely different line of work as compared to your regular operations. So if you decide to delegate these roles to your existing employees consider the pros and cons that we mention here.

Going at it alone or with your partners

You and your partners can research, educate your selves and consult with advisors and contractors for a period of time and then try to sell the business. This can be a very rewarding experience. But most small to medium sized businesses need their partners to focus on growth and/or operations. This is even more important in the last year of your business when prospective buyers and their banks will inspect your business and its future possibilities. Unless you are completely hands-off from your business, you cannot take time out from your business to try and sell it. The most important point here is that selling a business requires a lot of experience and it is not a trial and error process. Mistakes are costly and can erode large portions of your valuation.

What you cannot do on your own

Eventually if you do decide to take the time to go by yourself and bring on a few of your trusted employees into the team, there are some things you will not be able to do.

You have to hire an attorney

Yes you can go through the whole process without an attorney, but most experienced buyers will not go through the process unless you get an attorney. Attorneys protect both sides. But more importantly, attorneys protect the agreement and the future of the business. Remember, closing the sale is a milestone but not the end of the process. You have to transition the operations and ensure that you abide by the purchase agreements. Attorneys on both sides will ensure fair trade and agreements as allowed by law. Most small to medium scale business buyers will use business acquisition loans. Such lenders will also mandate that both parties engage proper legal counsel.

You might have to hire an audit firm

Some lenders will mandate the buyer to audit your financials. Small businesses seldom have audited books and records. This is not something out of the ordinary because keeping audited books and records is time consuming and expensive. Most business owners will ensure they file the correct taxes. However, deductions, expense management, mingling of personal and business funds and accounts are not uncommon. These complications can force you to get an independent financial audit or you may risk losing a very good buyer and deal. You should also negotiate with your buyer and their lender to share audit fees or settle for less involved reports like quality of earnings or a financial review.

You may have to hire independent valuation of assets

Many business sales involve purchase of fixed assets. These may be completely depreciated, beyond their useful life or currently on the fixed asset schedule. They may also be assets that are producing income for the business. For example, real estate that is rented or trucks and tools that are rented. If these assets are part of the business sale, your buyer and their bank may require you to provide an independent valuation report of these assets.

Things to watch out for if you are going solo

There are several things to take into account when you have decided to sell your business on your own and/or with an internal team. There may be several other nuances, but from our five decades of combined experience in buying and selling companies, we feel these are the most common.

Use our free resources on how to sell your company

We have written a very detailed article and have a lot of resources on our site to help you understand how to sell a business. We are also working on several free templates that you can use. Please stay tuned by signing up for our blogs and newsletters.

Educate yourself thoroughly on the different type of exits

A lot of sellers wait for the buyer to tell them what type of exit they prefer based on the purchase agreement. The type of exit will have implications on taxes that you will pay, the transition, any debt, and assets. Make sure you read about the different type of exits. You can find a lot of different resources on our website as well. The two most common are equity sale and asset purchase. In general buyers prefer asset purchase while sellers prefer a stock sale from a taxation purpose, but remember that each deal is unique and there are no hard and fast rules. Asset purchases are more common, however bigger companies have more stock sale.

Understand or consult on tax implications

A lot of business owners leave the tax planning towards the end. They factor in a certain percent and based on that they set the sale price. In the end the numbers can be drastically different. Small changes at the outset can help save a lot of money. Taxation gets more complicated for multi-entity businesses, companies that have a lot of assets like equipment, real estate, inventory etc. You can also negotiate with a buyer better if you understand all the different types of exits and their tax implications. We strongly advice you to reach out to accountants and tax consultants that work in the business brokerage industry. You can always reach out to us and we are happy to extend our network to you.

Create non-business email addresses and file repository

Whether you hire a brokerage or consultants or go about the project on your own with key employees, you must create non-business emails and file repositories (data rooms). You need to start separating yourself and your personal information from your business, because soon your business with no longer be yours. Unless you are staging an employee buy-out. It is generally a good idea not to use your business email for personal use, but more often than not, business owners end up using one email address. Also, you need to be extra precautious from a confidentiality purpose because pre-emptive news of an impending sale creates unrepairable damages. Additionally, when you first reach out to potential buyers you should not divulge your company information so you cannot use your business email address.

Deeply vet potential buyers

It is not uncommon for your competitors to pose as buyers, especially in crowded and competitive industries. So setup stringent screening criteria before you hand out your CIM or memo. Ask for LinkedIn profiles, social profiles and resumes. Also ask them where they will have source of funds and the reasons why they are interested in your business based on the teaser they saw from your marketing efforts. You can ask them for proof of funds, but that is typically requested prior to signing a Letter of Intent (LOI). Serious buyers will have no issue giving this information to you. In fact, they want to give you this information so you can make better decisions and not waste their time and resources.

Take special care on confidentiality

Ensure you have a bullet-proof NDA. After you have vetted a prospective buyer do not share any information unless he/she signs the NDA. We always mention explicitly that they should not share any confidential information, nor contact anyone linked with the company. We also tell buyers explicitly that they cannot use any information that breaches the non-compete clauses in the NDA. Telling them explicitly in addition to the NDA always has a better impact. They need to know that you are serious about confidentiality. If you do not have a good NDA you can always download one from our website. The best option is to get it made by your legal counsel of from reputed legal sources on the internet. Rocketlawyer and Legalzoom are good sources.

Do not get intimidated by the buyer’s broker

Buyers will almost always have a broker or investment banker or consultant that will broker the purchase. When they realize you do not have similar representation and additionally, you do not have experience buying and selling businesses, they will throw a lot of jargon, laws and rules your way. This is a big reason why business owners shield themselves from such intricacies and busy work by hiring a firm or consultant to represent them. However, if you are trying to sell your business on your own, you do not have to agree to anything until you have signed on a document that is binding. So stand your ground and it is not important to get back right away. Do your research and then answer, refute, disagree and negotiate.

Definitely get legal counsel

Do not skimp on legal fees. A business purchase agreement is a legally binding document. You and your company will be legally liable for any misrepresentation, even if was unintentional. Sometimes a letter of intent can also be a binding document. Also you have to know everything that a buyer’s broker and attorney might slip into any contract or document. It is much wiser to go by the “trust but verify” approach. As such, you must hire an experience mergers and acquisitions attorney. We have a lot of free resources on how to hire the right attorney on our website or you can always call us to discuss for no obligation.

Do not lose focus on running and growing your company

The last year of your business will most likely be the most important year. Prospective acquirers, lenders, auditors, accountants and lawyers will be inspecting your operations and future prospects. It needs to project a well-run business with great outlook. You and you core team will most likely have to pull long hours to work through this project and ensuring your business is running well as well as growing. It is important to create a well-buttoned project management plan as well as we have detailed in our flagship article.

Call us anytime to discuss for no obligation

You can always call us or comment here or email us to discuss anything. Unlike traditional brokerage or consulting firms, we focus on learning and sharing to better the buying and selling services and products of small to medium sized business. And, if there is a good fit for us to work together we then take the next step. Any and all conversations are a learning experience for us. So do reach out to us anytime for any question on the selling or buying process of a business.

The brokerage industry

In case you do decide to get help, we have explained how this industry works so you can make informed decisions. The brokerage industry, for buying and selling small to medium scale businesses, is fragmented and there are several types of services. There are about 3,500 business brokers in the United States and 10K to 15K advisors and consultants (Ref: IBISWorld). Big names like Sunbelt, Transworld and Murphy may work for you and they are great at what they do. But much like any industry, the big guns may not be something that you are looking for. Boutique brokerages can provide you with equal and many times a lot better services because they do not care about volume but on quality services. If you are a small business owner you will completely understand this. The following are the different types of services available.

Brokers with retainers

A large number of brokers will sign you up with a monthly retainer and some commission on closing the sale. You may or may not be assigned a specific person. But most likely you will have a designated project manager. The amount of the retainer can vary and depending on your company and the brokerage the amount can be in the tens of thousands per month. You can expect the additional commissions to be as low as 5% and as high as 10%.

Fee-only brokers

There are brokers and advisory firms that will charge a set amount to execute the sale of the business. They might have a cost plus model, where they will take a certain amount of money as milestone payments and an amount provided the sale is successful.

Commission-only brokers

A very few firms and brokers operate on a commission-only structure. They get paid only if the business sale completes. Finding a good commission-only firm is difficult because the business sale process is extremely involved and takes about 9 months to complete, . Basically you are expecting someone to partner with you to sell your business. In the end the firm can walk away with months of hard work and not get paid anything if the business sale does not mature.

Typically the commission ranges are from as low as 7% to as high as 12%. While this may sound good, such firms may not be as engaged as firms that take a high retainer. But a good aggressive commission only firm can be an excellent choice. They share in the risk pool with you. They do all the work for no cost and only gets paid if you get paid. Most firms that are good in this structure are boutique and work with a handful of clients at a time because of the high level of involvement in each sale. They also pick their clients after screening them and only if they are best fit for each other because of all the risk they take.

M&A Advisors & Consultants

There are independent merges and acquisitions advisors & consultants that can be hired for the process. Advisors & consultants typically have bought and sold businesses of their own and/or they work as independent brokers for several brokerage firms. Almost all advisors & consultants will work on a retainer for a set hourly rate and number of hours. Expect high hourly rates as this is a very niche industry and requires a lot of experience, knowledge and intelligence to structure and close deals. If you are hiring an advisor or a consultant, definitely vet them, verify their references. Also ensure you have a well-buttoned NDA and non-compete with them. You might be able to structure different deals with them – like some cash upfront, some on close. Additionally you can also hire a consultant for part of the process.

Project Managers

Project Managers are like consultants, but they would generally manage the whole project from start to end, keeping the scope, cost, time and expectations on part with the plan. You can have an internal PM, but most likely you will not be able to disclose the process or have free resources. You can take up this role, but like most small to medium scale businesses, you will most likely not have the time, especially in the last year of the business where you have to ensure that the growth is strong and operations are stellar. Also, this is a project that HAS to be managed well as it has a lot of different parties, most not in your control and targets that will keep moving till you are able to close the deal.

Investment Bankers

Typically IBs are hired for bigger deals – mid-sized organizations. They either represent the seller or the buyer. Almost always they work on a retainer and some cash at the end of the deal. Similar to consultants and advisors, expect to pay a high hourly rate and retainer, especially if the industry is very niche. Their main role is to establish fair value for a business acquisition based on market conditions. They can also provide strategic insight to the transaction by structuring deals that work for all parties based on their experience and knowledge. Typically IBs work for larger investment banks. They can also be market-makers because they might help introduce new securities to markets by creating the right new issue – debt or equity – and find the buyers for such issues.

Platforms

New self-serve platforms are coming into the small business M&A world. But they are only self-serve up to a point. Valuation of a company can only be done automatically up to a point. Rudimentary valuations can be done easily – we have a simple formula you can use right now – click here. But buyers will figure out their own math based on a lot of factors – comps in the market, market conditions, industry conditions, macro environment, expansion options, belief in the products and services – these are only a few parameters. Before you sign-up with any self-serve platform definitely inquire how the platform does the valuation of your business. Once again, if you are not sure please feel free to reach out us – we are happy to provide you a free valuation of your business.

How to pick the right partner

Now that you know more about the industry, the players and the whole process you are in a good position to figure out what type of partner and team you would like to work with. If you ask our opinion, we always recommend a commission-only brokerage that you like after you spoke to them. Commission-only brokerage firms will go the extra mile because they will not get paid anything unless they close the sale and get you the premium that you signed up for with them. Basically they are in the risk pool with you. They partner with you to sell your business. A good commission-only brokerage firm will not rush you to sell your business. If they feel your business should not be listed now because of the market conditions or your expectations they will let you know and continue to work with you to figure out the best time to sell your business. Because of all the upfront work they have to do to close the deal, they are careful to pick a best-fit client. That protects you and your business interest as well.

How to manage expectations

It is important you set the right expectations from the whole process and the project. See our process to understand the steps and the typical timeframes for each milestone. It is also important to set the expectations with your entire team that you will create to sell your business. Typically, a good broker will not be shy to tell you the nuances and problems you will likely expect during the project. They are not worried about losing a client because they are more concerned about the project not going as per your expectations. Remember, a good brokerage firm, consultant or advisor will partner with you to sell your business. If not, they are not a good fit. There are many resources in this industry that have marred the profession, much like many other industries. Our hope is that we are able to bring transparency to the process and make good business happen.

Final thoughts

The bottom line is that you can always sell your own business. Our site and videos will teach you everything you know on how to go about doing that. In fact we urge you to educate yourself as much as possible so this way you can feel in control, which is important, because after all you will be the biggest beneficiary from the sale of your business and so you will have the biggest risk. Having said this, the reality is that you should not go at it alone. In our 5 decades of combined experience and having sold businesses on our own in the past, we can vouch for the fact that the result will be significantly better if you pick a winning team. If you are not sure just contact us and we are happy to discuss more. We are a boutique commission-only business brokerage and we only work with a few clients at a time. Our mission is to bring transparency into this industry so we look at every opportunity to talk to business owners, learn from their business and contribute to the body of knowledge.

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