Here’s how to get the best price with the least stress if you’re thinking of selling your brokerage. Words by Ryan Grove, the Executive Head of Finance at Premium Finance Partners.
I remember my realtor told my wife and I, “Selling your home is the most important and stressful transaction you will ever undertake.”
While true for most people, selling a home for most businesspeople is child’s play compared to selling your business. After all, most entrepreneurs will go through four or five homes in their life but will usually only sell their business once.
So, if this is going to be a once in lifetime experience, what should you know?
Upfront, we always urge every prospective seller to be brutally honest with themselves, along with their advisors, about the reason for the sale.
This is critical for two reasons. First, it is virtually impossible to conduct an effective sale process if the seller will not make explicit why the transaction is being undertaken.
Second, buyers are always probing to learn why the business is for sale. If the reason doesn’t fit the facts, then they will become suspicious of everything they are told – true or not. This will more than likely result in a reduced price.
Sellers are so much more likely to achieve the best result if they proactively make the sale decision, rather than passively waiting for someone else or the market to make it for them.
Use an in-between
After deciding to sell, the next big decision is, should you hire an intermediary? Insurance brokers wouldn’t exist if intermediaries weren’t an integral part of the insurance-selling process; the same is true for intermediaries who will sell your business.
Sell-side advisors/intermediaries do a lot for the sales process and ensure you maximise your exit.
Benefits Of Sell-Side Advisors:
- Provide a realistic market value.
- Help prepare the business for sale.
- Develop the marketing strategy.
- Research prospective buyers.
- Prepare the offering memorandum/prospectus.
- Contact prospective purchasers while maintaining confidentiality.
- Secure indications of interest (valuations) from interested parties.
- Populate the online data room with due diligence information.
- Arrange face to face meetings.
- Orchestrate and enhance the final offers.
- Help negotiate the purchase agreement.
- Close the deal.
- Free up the seller’s time.
Some sellers won’t need an advisor as they themselves have the Mergers and Acquisitions experience (M&A) and have enough time on their hands to do the above. However, for most sellers, we urge them to consider getting an advisor who has the following:
- General M&A experience (know-how).
- Specific M&A experience (industry related).
- Great ability to market your business to prospective buyers.
- Contacts in the industry.
When assessing multiple advisors or intermediaries, be sure to work with one that gives you a realistic valuation. Intermediaries will often sign you up for their services, only to leave you disappointed with the resultant purchase price.
What’s Your End Goal?
Far-sighted business professionals start with the end in mind. If they plan on selling one day, they consider what kind of business the likely buyers will want to purchase. They then structure their business this way.
Some examples to consider are:
- Retain some of the profits in the business.
- Make sure your loss ratios have been good to great over the last few years, obviously there are unavoidable losses but increasing loss ratios over time don’t bode well for the offer price.
- It’s nearly impossible to sell a company while unresolved business, accounting, tech and legal issues exist.
- Tidy up your financial statements.
- You will need to be around for the “earn-out” period, so consider one to two years until you are completely out.
- Lawsuits always look twice as serious or risky to prospective buyers.
- Know what the business is worth and not what you expect it to be worth.
- Take advantage of the seller’s unfair advantage, prep your business and time the sale.
- Tie down restraints of trades with your employees.
- Going to market when the company’s financial results show the best results is usually the guide star.
- The sale will ultimately be because of your efforts in transferring the client relationships to the buyer and then exiting the industry.