Mariann Montgomery shared with us about the Steps to Preparing a Business for Sale! Whether you are a business owner or work for a business owner, you can also apply these principles to transferring the business to the next generation, or even a company buy-out.
Murphy Business is a franchise system that has been around for over 25 years. It is the largest brokerage firm in the U.S., measured by the number of transactions and the total dollar amount of transactions. There are over 350 franchise owners and agents in the U.S. and Canada. When Murphy Business takes a business to market, they sell over 80% of those businesses; the national average is 15%! Murphy also happy to co-broker.
Andy and Mariann’s business is working with business owners to help them sell their business, transition or exit planning, business evaluations and equipment appraisals.
Business Brokerage is Main Street, the donut shop, averaging $350-400,000 per transaction, with transactions up to about $3 million. They are marketed on listing sites, and the businesses are priced. Andy and Mariann typically work in upper-end business brokerage and lower-end Mergers and Acquisitions (M&A). For M&A, they develop the buyer-pool through databases of potential buyers and then get the buyers in a bidding situation.
With any professional advisor, be sure to evaluate their education, experience, professional designations and certifications. In Texas, there are no requirements to be a business broker or to work in M&A! Andy and Mariann are both Board Certified Brokers, Board Certified Business Intermediaries, and have Real Estate Licenses. Andy is also a Business Certified Appraiser and a Certified Machinery & Equipment Appraiser. Mariann is also a Certified Exit Planning Advisor and a Certified M&A Intermediary. Andy and Mariann also belong to many Professional Organizations. Andy is the President of the Texas Association of Business Brokers local chapter and Mariann is the President of the Exit Planning Institute local chapter.
Why use an intermediary? An intermediary can bring more quality buyers which leads to more offers and better deals, is a buffer between the buyer and seller, and has full-time focus. Also, the preparation required to get a business on the market is immense!
In the next 10-15 years, 65% – 70% of small companies in the U.S. will go up for sale. Forty-four percent of buyers are first time business owners. Of all the people who begin the search to buy a business, 90% never complete a transaction. Half of the deals that are agreed to between buyer/seller never get to closing! Only 20% of the business marketed will ever sell!
To sell a business, you first build a team (both internal and external). Then begins the process of information gathering, business valuation, pre-marketing value enhancement, marketing materials preparation (10 to 21-days to prepare), buyer research and buyer outreach, buyer qualification, due diligence (DISCLOSE!), negotiation, transaction structure, legal documents, and post-closing issues. When the Business Valuation is done, you must do a “reasonableness check” to make sure the values still lead to a profitable business for the buyer.
What makes a company valuable? Cash flow, a profitable business that runs without the owner, clean financials, broad customer base, steady growth, recurring business that can be assigned, and competitive edge in your industry.
How can the value be enhanced pre-market? Due diligence! Business owners need to be prepared to disclose everything! Evaluate: business operations, management, customers, sales, facilities, HR, and legal documents. The number one thing: 3 – 5 years of clean financials!
Time frames to sell a company? Usually 6 – 9 months for a business brokerage deal and 9 months to 1 1/2 years for an M&A; that is if the business is ready to go!
Stop wasting time! You can’t start too soon on preparing! Eliminate surprises, maintain confidentiality, and keep your foot on the gas! Time is a deal killer! Seller must think like a buyer!
Leads: A: Businesses owners of businesses with more more than $1,000,000 revenue; B – All of you; C – Introductions to advisory team (CPA, attorneys, wealth advisors, insurance agents)