Understanding How to Work with Your Business Broker

In You’ve Received an Offer for Your Business… Now What? Part 2, we told you that just because you’ve received a first offer for your business doesn’t mean that you have to take it! And that in fact, it may be an indication that now is the time to test the waters in the business-for-sale marketplace. Chances are there may be others who are interested…

BUT, we don’t recommend just jumping in before you and your company are ready. Extending the water analogy… you want to make sure that you’ve studied your course, your ship is seaworthy, you have the right tools and crew to help guide you on your journey, and that you’re prepared for any emergencies along the way. As we’ve said before, selling your business – no matter how you do it – can be a potential minefield.  

In the previous article, we talked about:

  • Go to Market Prep for You and Your Business
  • Navigating the Business for Sale Marketplace
  • Business Value and the Art of Positioning

Now, let's take a look at what happens after you engage a business broker.

Working with Your Business Broker

Another critical step is working with a reputable business broker or intermediary, who has a track record of successful sales and happy clients – this will be key to your success.

However, the reality is, that even in a sellers’ market, 70% of owners are turned down by business brokers and only half of those that make it to market will actually consummate a deal*. So, before you even approach a business broker, you need to get your business prepared!

For example, do you know what your business might be worth? It pays to understand the range of values for your business before bringing it to a broker. It’s the key to understanding whether the after-tax value will be high enough to meet your financial goals. It will also enable you to determine how much you may need to grow the business before you can sell, shore up any weaknesses to maximize value, and help you uncover areas that need to be addressed before a broker or buyer scrutiny (due diligence) begins. You can read more about Maximizing the Value of Your Business Before Selling.

Broker’s Opinion of Value

Once you start working with a business broker, one of the first things they will do is provide their Broker’s Opinion of Value (BOV) or Broker Price Opinion (BPO), which will confirm what your business is likely to sell for on the open market. It is based upon your broker’s personal analysis of the business, industry expertise, knowledge of your market, understanding of the lending environment, and comparable prior transactions. For smaller businesses, the BOV will be used to set an asking price, while for large businesses, you’ll let the market determine the price. (You can read more about this in part 2.)

M&A Teaser

Your broker will put together a teaser about your business and send it to dozens of potential buyers. The teaser should do just what its name describes – pique potential buyers’ curiosity enough to want them to learn more. It should describe the company in enough detail, without disclosing the company’s name or confidential information, to introduce the opportunity to financial or strategic buyers and get them interested.

Axial calls the teaser the “most important document a business owner prepares as part of a transaction process. This is because the teaser is the first ‘filter’ that every prospective buyer will review before moving forward. If the teaser does not attract the right potential buyer(s) and help screen out the irrelevant buyers, the rest of your sale or financing process will be much more laborious, much less efficient, and likely less successful.”

If there are potential leads on buyers, your broker will help qualify them and determine which ones are viable candidates to buy your business.

Next up, we’ll discuss the next steps including the importance of the initial conversations with potential buyers, the necessary legal paperwork such as non-disclosure agreements, the Letter of Intent (LOI), and due diligence.

We want you want to have choices and be able to pick the buyer that will be best for your company and for you in the long run, which is why it’s critical that you’re fully educated about all of your exit options and find the right people to work with who will help you achieve the most successful outcome.

*Q1 2019 Market Pulse Report published by the International Business Brokers Association, M&A Source and the Pepperdine Private Capital Market Project

You need the right tools, resources, and guidance to get started! Business Transition Academy’s proven six-step planning process and training programs provide you with the roadmap you need to exit your business on your own terms. Download our FREE book and gain access to more FREE business owner education resources, including:

  • Introductory Course – How to Plan a Successful Business Exit
  • BTA Owner Readiness Assessment
  • Success Stories
  • Real-Life Lessons Learned by Owners

We will show you the steps you need to take to plan for a successful business sale or ownership transfer.

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Material discussed in this communication is meant to provide general information and should not be acted on without obtaining professional advice tailored to you or your company’s individual and specific needs. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used by any person or entity, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This information is for general guidance only and is not a substitute for professional advice. Information presented is believed to be factual and up-to-date; however, BTA makes no guarantee as to accuracy, completeness, suitability, or validity of any information within this communication and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages from its display or use. Any forward-looking statements are believed to be reasonable; however, BTA gives no assurance that such expectations will prove to be correct.

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