Entrepreneurs who’ve built a successful business invariably end up with the itch to move on to a new challenge. Whatever the new challenge, whether another startup or something else altogether, there’s the tiny matter of first extricating themselves from the existing business and ensuring they extract as much value as possible before they move on.
When there are co-founders, it may be that the co-founders have the first refusal on the leaving founder’s shares. However, it’s rare that co-founders both exist and are in a financial position to buy out the departing partner’s shares. This leaves most such entrepreneurs with the only option of finding an external buyer. But this is easier said than done.
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Contrary to popular opinion, it’s not easy to find external buyers and close a deal, and this applies to even the most attractive businesses. First time sellers of businesses are often taken aback by the sheer amount of work they need to put in just to prepare the figures, documentation and other information that buyers and investors typically require. Even those entrepreneurs who’ve been through fundraising rounds find that it’s a different ballgame to get the right material together for the sale of a mature business as investors in these businesses often have requirements and demands quite different to those who provide startup or seed funding.
Typical expectations of buyers include accounts and management accounts going back several years, documentation related to any previous funding, business plans, financial and other projections, copies of contracts involving employees/suppliers/customers/lease etc. There is also SWOT analysis of the business, analysis of competition in the industry, wider operating environment analyses, breakdowns of sales performance by product/geographical area/salesperson, financial ratios of the business and comparisons with industry averages, copies of contingency/continuity plans … and much else.
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Even those business owners capable of getting all the right documentation and records together, preparing a professional Information Memorandum and doing the right marketing to get targeted and well-heeled buyers through the door generally lack the skills to juggle those buyers and play them off against each other to ensure getting the best deal. This is ideally done by a competent business broker or corporate finance firms.
Unfortunately, most business brokers are neither competent nor, some would argue, even honest. The industry has a bad reputation because there are many bad players. So choosing a business broker is an art form in itself and this business broker advisory site has several articles on how to go about finding the right broker. Our advice is that business owners that consider the use of a professional to handle their sale spend several days or weeks investigating the market.
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They can speak with numerous brokers, researching each one of various feedback websites and not going simply on what the broker has said or even what professional or “industry bodies” the broker is signed up to as a member (as these don’t mean very much). The ideal broker is one who has sold several businesses like yours and is not running a no-sale-no-fee operation (as these are the cheap, bucket seat brokers who tend to have the worst reputation and lowest success rates).
