Linda (not her real name) told me she wanted to sell her business in 2020, but was confused about the process. She said, “I get unsolicited letters all the time, is that where my buyer is going to come from or should I just throw them in the trash?”
I told Linda I get this question a lot. If you own a business, you know what I’m talking about. You probably get letters from business brokers stating, “I have a buyer,” and from individuals claiming to have equity backing from high net worth investors.
My response to Linda’s question was predictable given what I do for a living. I explained that when selling a business, an owner will almost always get better price and terms when an intermediary is retained to engage a process that brings multiple potential buyers to the table. I say this from experience handling many transactions, but I also say it from making this mistake when I sold my business. I had a big company interested in buying my radio business, and they politely called me once every six months, or so. When I finally said I was interested, they moved quickly and gave me an offer that seemed reasonable. A few months after closing, I realized I left money on the table because I didn’t engage with other potential buyers.
So now I say to business owners like Linda, “do as I say, not as I did.” If your business is showing revenue growth, stable or improving profit margins, has a diverse customer base, and is sustainable without you, you have a very valuable asset that will be of interest to multiple potential buyers. Therefore, when you are ready to sell the business, it will be in your best interest to retain an intermediary. That person will help you sort through junk mail versus bona fide expressions and help you generate competing offers. And when you hold a controlled auction or simply have open conversations with multiple potential buyers, it’s almost certain you will see better price and terms than dealing with one buyer.
JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. http://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 . He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The story above is true, but the names and fact patterns above have been changed to preserve the parties’ identities.
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