You’ve built your business from the ground up, putting in sweat equity like no one else will understand and appreciate. For that reason, it’s hard to let go of your baby because you think it’s worth more than what others are willing to pay for it and you can’t trust anyone to run it like you. These are all considerations in finding the right buyer for your business, but trust that if you put in the right preparation, you can find the right person to sell it to that will leave you feeling glad and relieved that you made the right decision.
Part of exit planning is to know who the potential buyers are. The more interested buyers of your business there are, the more competitive and higher your selling price will be and you’ll be in a position to choose who will run the legacy of your business after you. The top mistake business owners make is that they don’t do their homework, so they end up exiting too early at a low selling price or they go with the first broker on their google search whose goals aren’t exactly aligned with yours. Avoid regret by following the steps below to identify the right buyer.
More on each below.
Finding a broker might be the easiest and hardest method. It’s easy because you can google local business brokers and you’ll get hundreds of hits. It’s hard because you have to then sift through the list and vet the right one to work with. If you don’t consider yourself financially savvy and would rather not hustle your way to finding a buyer, it’s most prudent to go with a broker.
Do remember that brokers can be expensive. They will usually charge a retainer fee of between $15,000 – $30,000 for a business under $5m and a retainer fee of between $30,000 – $80,000 for a business over $5m plus somewhere between 3% – 8% of the transaction fee, depending on the size of your business. For example, if your business has $10m in revenue, $2m in EBITDA and sells for $8m, then you will pay the broker ~$400,000, so you will actually receive $7.6m from the buyer after broker fees. Note that fees vary regionally and by industry, so these numbers are not the standard for every business.
Considering that brokers are expensive, you need to make sure to pick the right one. A good broker will possess the following:
Googling the brokers may take forever. I would advise starting here (International Business Brokers Association): https://www.ibba.org/find-a-business-broker/
If your business is in a specialized industry, google “[your industry] businesses for sale in [your city]” and look at where people who are looking to buy or sell businesses in your industry are gathering.
If your business is in a broad industry, you’ll have to rely on big market places that have a lot of traffic – not just where sellers are going to list, but where a lot of serious prospective buyers are going. The most well-known online marketplace to list your business is bizbuysell.com.
Sounds daunting and is a huge task at hand, but this could provide the most payoff with respect to:
The payoff from this approach comes from targeting and selling to buyers who strategically need your business. No matter how dedicated your business broker is, they won’t put in as much devotion as you will to find the best potential buyer.
The challenges are that:
If you’re ready to take on this challenge to reap high reward, the first step is to make a list of potential buyers. These are the types of buyers you want to search for in your industry and your region:
This method of identifying potential buyers and cold calling them is not for the faint of heart. You need thick skin, you need drive, motivation, and a kick-ass hustle mentality. You also need to have your business groomed in terms of historical financials, supporting basis for growth in your forecasts, supporting build-up of revenue, costs and operating expenses, and other areas of improving your business to the highest value.
What stage are you in your business? Are you ready to sell now or do you have some flexibility to improve your business, educate yourself in whom you can sell to and which of the above method you want to go with?
Describe your business below or contact us to get an assessment of where you are in the business cycle and what areas you need to improve in order to prepare your business for a successful sale.
Subscribe for useful tips and resources to grow your small business.