Step up: The premium of the right advice
Friday, February 29, 2008/
When selling your business, should you use a business broker, professional adviser or investment bank? By TOM McKASKILL.
By Tom McKaskill
When selling your business, should you use a business broker, professional adviser or investment bank?
While every entrepreneur knows how to properly package a product or service to achieve a profitable sale, few would claim that they have the same competence when it comes to selling a business.
The fact of the matter is that selling a business is a specialist activity with its own set of legal and accounting issues, and this is one area where experience does count. That being said, the entrepreneur knows his business and should understand better than anyone where it has growth potential – which is the basis for a higher sale price.
Should you use a business broker or investment banker to help sell your business? The answer really depends on how well you understand the process of selling a business, whether you already have willing buyers in your sights and whether you have prepared the business for sale.
If you are unsure about how you should prepare your business in order to achieve the best offer, or if you are uncertain how to attract the right buyers, then getting help from professionals who undertake those tasks on a regular basis makes sense.
Even an experienced entrepreneur who has sold several businesses might like to have an adviser in his team to assist in the negotiations. There is considerable benefit in having an objective, knowledgeable person on your team to provide feedback, suggestions and to keep the negotiation process moving forward.
The key to the use of such professionals is, however, to use them to assist the entrepreneur in the process, not to take control. Too often business owners have allowed professionals to control the process and the negotiations, not recognising that their primary motivation is the commission on a quick sale.
The entrepreneur who understands his or her business well and spends time identifying and connecting to the best potential buyers, will generally achieve a much better price for the business. The best buyers will be those individuals or corporations who can best exploit the potential in the business.
Positioning the business with these potential buyers and preparing the business so that it can support such potential is best undertaken by the entrepreneur. It also takes time and thus cannot be undertaken properly if the business is rushed into a sale.
At the same time that the entrepreneur is preparing the business for sale and positioning it with potential buyers, professional legal and accounting firms need to be appointed to assist with both preparation and sale transaction support. Better sale prices are achieved where business risk for the buyer is minimised. This process often requires the business to undergo a vendor due diligence as part of the preparation process.
By proactively undertaking their own due diligence review, the entrepreneur can discover risks in their business that can be addressed long before a potential buyer turns up. Not only does such an activity improve the current business but it significantly reduces buyer due diligence costs and time during contract negotiations. A business that is well prepared for buyer handover will attract better buyers and a better sale price.
The smart entrepreneur gets good advice and smart people to support the sale process. The result usually is a much better price.
Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.