If you have ever sold a home, you can sell your business
Owning a business in a small town has many benefits, but one of the drawbacks is the difficulty of finding a buyer for your business when you decide its time to move on. The pool of potential acquirers is smaller and capital for buyers is harder to find. But if you understand the process of selling a business, then you can take steps to minimize the barriers to selling your company.
Selling a home and selling a business are remarkably similar tasks. If you’ve ever felt intimidated or confused about the process of selling your company, just think of the transaction in the same way you would if you were selling your home. This is the third in a multi-part series. Start reading with Part 1 now.
Step 5: The offer
Once your real estate agent has shown your home to a number of potential buyers, you start entertaining offers. Your agent does what he or she can to drum up more than one offer to create some competitive tension in your deal and, possibly, a bidding war. You review each offer and negotiate the finer points.
When selling your business, your management presentations will (you hope) be followed by an offer(s) in the form of a non-binding letter of intent (LOI). The LOI will include the price the buyer is willing to pay for your business (both the cash portion and any earn-out calculation) along with a request for a period of exclusivity to perform “due diligence” so the buyer’s team of professionals can verify the various claims you made in the management presentations and in your marketing materials.
Due diligence is the equivalent of a home inspection in a real estate transaction. Most offers to buy a home or business have conditions, and when you accept the offer with conditions, you’re essentially taking your house off the market while the buyer inspects your claims. Just like when selling a house, you have to take a calculated gamble that the offer was made in good faith and that the buyer will follow through on his or her stated intention to buy. However, taking your property off the market is a risk, and if upon closer inspection, the buyer sees something of concern, then you might find the offered price reduced (very common) or the buyer walking away entirely.
Due diligence is a two-way street. I spoke to Brad Bottoset the owner of Reno-based business brokerage The Liberty Group of Nevada. Brad’s firm often represents sellers from small towns, “as a seller, make sure the offer gives you an opportunity to complete some due diligence on the buyer. You’ll want to thoroughly review the buyer’s credit history, their personal financial situation, and their business experience to make sure you’re comfortable selling them your business.”
Next Wednesday, we’ll look at step 6 in selling a house or a business: the inspection.
John Warrillow is the author of Built To Sell: Turn Your Business Into One You Can Sell. Find out if you have a sellable business – and what you could get for it – by taking the 10 question Sellability Index Quiz at www.BuiltToSell.com.