Morgan & Westfield is not your average business broker. While traditional business brokers and business brokerage firms have always patterned their...
A Lazy Man’s Secret Recipe for Selling a Business the Easy Way
Do you want to know the secret of selling your business the easy way? Are you getting frustrated dealing with buyers just asking for “more information”? Are you tired of buyers who inquire about your business, only to not return your phone calls or emails? What do you do when a buyer calls or emails and says “Send me more information.”?
Fortunately, there is an efficient and highly effective method to selling your business. This method is used by both experienced brokers and experienced sellers and can also be used by you to streamline the process of selling your business.
As a business owner, you are undoubtedly already a very busy person. Dealing with buyers on top of what you are already doing can be a daunting task. It can be very frustrating and tiresome to deal with buyer after buyer, answering the same questions every single time. Most business owners who are selling their business on their own call the buyer and discuss the business with the buyer over the telephone. Unfortunately, this can be extremely time-consuming. Many sellers also quickly get frustrated with buyers who do not return their phone calls or emails.
According to recent studies by the International Business Brokers Association, the average seller has to talk to 40+ buyers to sell their business. Clearly, discussing the business on the phone with every single buyer can be extremely time-consuming. It is also sometimes difficult to connect with the buyer on the phone and many give up after the first round of phone tag.
Why can’t buyers just come look at my business?
Like everyone else today, buyers are busy people too. Few buyers can afford to waste time traveling to see a business that may not be a good fit for them. Buyers prefer to receive some information on the business before traveling to see the business. In addition, some buyers are not local; therefore, they prefer receiving information prior to making the site visit.
What is the most efficient way to sell my business?
The most efficient and effective way to sell your business is to prepare a written document on your business that answers the most common questions buyers ask and share this with the buyer. This document can be a simple word document with no color or frills, or it can be similar in nature to a business plan and be much more comprehensive. An advantage of having something in writing for the buyer is that it gives the buyer something to take with him/her and remember your business by. If a buyer looks at eight businesses for sale, and one of those businesses has a written marketing prospectus, then which business do you think he/she is likely to remember the most? It is very typical for a buyer to look at 5-10+ businesses, and it is reasonable to assume that a buyer will forget 90% of what you tell him if he/she looks at more than five businesses for sale.
This seems like overkill. Why can’t I just talk to the buyer on the phone?
The majority of sellers and brokers prepare a marketing prospectus and it has therefore become standard practice. If you do not prepare one, then buyers will assume that you are not serious about selling your business.
“Do I really need a Business Summary if I am selling a very small business under $25,000? Aren’t those just for large companies?”
Because smaller businesses do not have as many moving parts and are typically much simpler, a shorter summary can be prepared. Larger businesses warrant a more thorough, lengthier summary.
On another note, if you think $25,000 is not a lot of money, then please get your checkbook, write a check to “Morgan & Westfield” for $25,000, and please send it to our address below. Just kidding. For many buyers, $25,000 is all the money they have and therefore, $25,000 is a lot of money for them. If a buyer only has $50,000 in cash and plans on investing $25,000 of this in a business, then that represents 50% of his liquid net worth. Likewise, if a buyer has $1 million and plans on investing $500k of this amount in a business, that also represents 50% of his/her liquid net worth. So the price of a business is relative to the amount of liquid cash a buyer has and his/her net worth.
On another note, just because a business is not priced high does not mean a buyer will not want to ask the basic questions. They will still want to know how the business operates, the details regarding the lease, information regarding the employees and the other basic information regarding the business. These questions must be answered so you can either answer these on the telephone or in a written format.
What kind of information do buyers want to know?
I have seen email exchanges between a buyer and a seller that go like this:
Buyer inquires about the business: “Please send me more information on the business.”
Seller – “What do you want to know?
Buyer – No response … End of conversation.
I have talked to buyers who are very unhappy with the seller’s response, “What would you like to know?” The buyer expects the seller to give them information without having to pull teeth from the seller. This kind of response sends a message to the buyer that the seller is completely unprepared to sell, is just testing the waters or is just ignorant and hasn’t talked to buyers before.
Most buyers have the same basic questions:
- What is the asking price?
- How much inventory does the business have? Is it included in the purchase price?
- Are you willing to finance a portion of the sales price?
- Where is the business located?
- What are the lease terms and basic information regarding the lease?
- What are the sales/expenses? Current years and historical years.
- Is the seller willing to train and sign a non-compete?
- Are any licenses required to operate this business?
- What are the hours of operation?
- And so forth. – Buyers routinely ask the same 20-50 questions.
80% of buyers are first-time buyers and are not familiar with the process of buying a business. These buyers feel most comfortable reviewing written information on a business and then preparing a series of follow-up questions to ask the seller.
What is the most efficient and effective way to prescreen buyers?
The best way to prescreen buyers is to just give them the written information and then let them contact you if they have questions. If confidentiality is important, then you may require that the buyer sign a non-disclosure agreement/NDA (Please email us for an article if you are unfamiliar with NDAs.) before sending him the information. We do not recommend, however, asking the buyer for proof of funds or a personal financial statement before sending them information. We suggest you ask for this later in the process.
That is it. It is pretty simple to do, but rarely practiced amongst sellers. Most sellers either attempt to prescreen the buyer before giving them any information on the business or simply don’t prescreen at all. Many buyers get offended if you prescreen them (ask them for proof of financial ability) before giving them information on your business. Why would these buyers look at your business when they can go look at dozens of other businesses without being prescreened? If your business is not highly unique, then it is unlikely the buyer will do just that.
I prepared a Business Summary on my business, have emailed it to over six buyers, and haven’t heard back from any of them. What is going on?
These buyers probably found something about your business that wasn’t a match for them. It is very unlikely they would have moved forward if they would have come physically seen your business anyway. You just saved a dozen hours of wasted time with a buyer that wasn’t a good fit for your business.
90-95% of buyers will never end up buying a business. Responding to every inquiry can be a tremendous waste of time. Sending buyers your Business Summary effectively weeds out the tire kickers. Interested buyers will contact you for more information, and it is then justified that you prescreen these remaining buyers by asking them for a personal financial statement and a buyer profile.
How much information should I include in my Business Summary?
Give the buyer enough information to decide if they would like to move forward or not. However, you still want a little curiosity remaining after they review the summary. You should answer the basic questions and then let the buyers know that if they would like more information, they may call you to discuss the business in more detail.
What does a professionally prepared Business Summary contain?
Business Summary contents:
- Basic summary of the business and the product/service.
- History of the business – How long it has been owned, whether it was purchased or started from scratch.
- Asking price
- Amount of inventory – Is inventory included in the price?
- Is seller financing available for the business? If so, what are the terms?
- Is the real estate for sale or for lease?
- Is the seller willing to sign a non-compete?
- How long is the seller willing to train the new buyer?
- What licenses are required to operate this business?
- How much working capital is required to operate this business?
- Financials – Gross sales, cash flow, profitability, and how to determine profitability if financial records are not accurate.
- Payment type by customers – Cash, credit card, check, terms.
- Explanation of customer base – Contracts required, where customers come from, amount of repeat customers, etc.
- Hours of operation
- Square feet and description of premises, including parking.
- Description of location (the geographic area) – This is intended for buyers who are not local.
- Number of part-time and full-time employees, employee rates, key employees. Will employees stay after the business is sold?
- Summary of the lease terms – Base rent, total rent, deposit required, lease expiration date, options to extend.
- Detailed equipment list
- Seller’s Disclosure Statement
- Maps and photographs
Things that you can point out that buyers rarely ask:
- Highlights of the business: long lease, low employee turnover, high margins
- Description of location and justification for why it is a good location
- How to improve the business (Improvement Potential)
First-time buyers pay the most for businesses. They are willing to pay more than any other type of buyer. By packaging your business professionally, you send the message to the buyer that you are serious and prepared about selling your business.
What is the Seller’s Disclosure Statement?
The number one thing keeping buyers from buying a business is fear, typically fear of the unknown. The Seller’s Disclosure Statement provides comfort to the buyer by disclosing any known defects of the business. The Seller’s Disclosure Statement is a three- to four-page disclosure document in which sellers are asked a series of questions relating to disclosures made for the business. The Seller’s Disclosure Statement is an excellent tool for making the buyer feel comfortable that there are no hidden defects of the business or the location.
What are the advantages of a professionally prepared Business Summary?
Advantages of a Business Summary:
- The Business Summary can be shown to other decision makers, such as the buyer’s husband/wife, investors, accountant or attorney.
- Having a written Business Summary shows the buyer that you are serious about selling your business. Buyers prefer to deal with serious sellers.
- The buyer has something to take with him/her other than a memory of a phone conversation which can be quickly forgotten.
- Preparing a Business Summary enables you to put the business in the best possible light and point out its highlights and opportunities for growth. While you must think on your feet when talking to a buyer with a Business Summary, you can put thought into how you present the facts and how you position the business in the buyer’s eyes.
- The buyer can often use your Business Summary to obtain financing with third parties, if it is prepared professionally. (Please email us if you would like our article on Financing Sources for Business Sales.)
- A Business Summary often increases the value of a business in the buyer’s eyes.
- Having a written Business Summary makes your presentation consistent from buyer to buyer and makes it easy to remember exactly what you have told every buyer.
- Preparing a written Business Summary allows you to address questions that are not commonly asked by buyers such as how to improve the business. This allows you to discuss highlights of the business without having to be asked about them.