What Should I Know When Considering Hiring a Business Broker to Sell My Company?

#1. Advantages of using a business Broker

Using a business broker when selling a business offers several advantages, including:

• Market Knowledge: Leverage our extensive market knowledge for accurate business valuation based on current trends.

• Confidentiality: Ensure discreet sales, crucial for business owners who wish to avoid alerting employees, customers, or competitors.

• Networking: Tap into our network of potential buyers, expanding the pool and increasing the likelihood of finding the right match.

• Expertise: Rely on our expertise to handle the complex selling process, from preparing materials to negotiation, due diligence, contracts, and closing.

• Stress Reduction: Let us manage the complexities of selling, handling negotiations, buyer communications, and ensuring a smooth transaction.

• Time Savings: Save time as we handle various tasks, allowing you to focus on running your business.

• Increased Value: Capitalize on our market knowledge and network to enhance the value of your business, securing a better sale price.

#2. What is the brokers Valuation Process?

• Holistic Valuation: Consider business value from buyers, bankers, and strategic perspectives during initial meetings.

• Debt Considerations: Acknowledge that even if the business is debt-free, buyers will finance significant debt, impacting valuation.

• Cash Flow Analysis: Discuss cash flow, including Seller Discretionary Earnings (SDE), providing insights into financial health.

#3.  How does a Business Broker increase the Value of My Company?

A business broker can help increase the value of your company in several ways as you look to sell:

• Preparation: Identify areas for improvement, streamlining operations, and reducing costs to boost overall business value.

• Marketing Excellence: Effectively market your business, reaching a wider audience and increasing the likelihood of higher offers.

• Negotiation Skills: Employ expert negotiation skills to secure the best possible price and terms for your business.

• Due Diligence Management: Ensure organized and timely provision of information, reducing sale risks and enhancing business value.

• Strategic Exit Planning: Develop an exit strategy tailored to maximize your business's value, considering timing, structure, and buyer selection.

#4. Confidentiality When Marketing the Company:

Confidentiality is important in the process of selling a business because the sale process can be sensitive and can impact the reputation and stability of the business. Confidentiality helps to prevent information from being leaked to competitors, employees, suppliers, customers, and other stakeholders that could harm the business or negatively impact the sale.

A business broker can ensure confidentiality by taking several steps:

• Nondisclosure agreements: Requiring potential buyers to sign a nondisclosure agreement, which is a legal agreement that restricts them from disclosing confidential information.

• Controlled access: Limiting access to sensitive information to only those who have a legitimate need to know.

• Anonymized marketing: Using anonymized marketing materials to promote the business, avoiding the use of the business's name and other identifying information.

• Screening buyers: Carefully screening potential buyers to ensure they have the financial and industry experience necessary to take over the business.

• Controlled communication: Monitoring communication between the buyer and seller to ensure confidential information is not disclosed.

By following these steps, a business broker can help ensure that the sale of the business remains confidential and protects the interests of the business and its stakeholders.

#5. What Documents are Necessary Up Front & Later in Due Diligence?

When selling a business, the business owner may be required to produce the following types of documents:

• Financial statements: This includes balance sheets, income statements, cash flow statements, and tax returns for the past several years.

• Contracts and agreements: This includes contracts with suppliers, customers, employees, and other third parties.

• Intellectual property: This includes trademarks, patents, copyrights, and trade secrets.

• Legal documents: This includes incorporation documents, business licenses, and any other legal agreements related to the business.

• Environmental and safety information: This includes information related to the environmental impact of the business and any safety regulations it must comply with.

• Employee-related documents: This includes employee contracts, benefits information, and any documents related to employee relations.

• Due diligence items: This includes documents requested by the buyer during the due diligence process, such as business plans, marketing materials, and operational information.

• Data rooms: The seller may be required to set up a secure data room where the buyer can access confidential information related to the business.

• Buyer-seller meetings: The seller may be required to participate in meetings with the buyer to discuss the business and answer questions.

• CPA questions: The seller may be required to answer questions from the buyer's accountant related to the financial health of the business.

• Lawyers: The seller may be required to provide legal documents and answer questions from the buyer's lawyer related to the legal status of the business.

• Representations and warranties: The seller may be required to provide representations and warranties related to the business, such as the accuracy of financial statements and the absence of any legal claims against the business.

These are some of the most common documents required during the sale of a business, but the specific documents required will depend on the buyer's requirements and the specifics of the sale.

#6 What Questions Will Buyers Ask the Seller?

Buyers will have any number of questions as they navigate the purchase of a business. Here are some common questions that are ask of sellers…

• How did you determine the price?

• How did you name the business?

• What is special and unique about the business?

• What growth opportunities are there?

• Who are the main competitors?

• What are the risks for a buyer like me?

• Are there key employees?

• What training and transition support is required?

Additionally, buyers may ask about the financials of the business, such as revenue, profits, and cash flow, as well as the customer base, supply chain, and any other operational aspects of the business. Buyers may also ask about the legal and regulatory environment in which the business operates, as well as any outstanding debts, lawsuits, or other liabilities. The specific questions a buyer asks will depend on their individual needs and interests, and their due diligence process will typically be more extensive for larger and more complex transactions.

#7 The sales process- How Long Will it Take to Sell my business?

• Playbook Advisory will draw up an individual marketing plan for your business and we will tailor this to the needs of the business as well as the Seller. Our marketing is designed to generate the most interest while striving to keep confidentiality at all times. The buyers will be screened and we will determine and assess the buyer’s financial situation, risk profile, experience, and proximity to the business. The next step will be to organize a buyer-seller meeting either onsite or at our Bradley Center office on the north side of Chicago. In this initial meeting, the meeting is an opportunity for buyers to ask operational questions and these meetings take around 75-90 minutes.

• After the initial buyer meeting, we will work with the buyer and discuss a potential first offer for the business. Our team will present this offer to you in writing in the form of a Letter of Intent. Once a letter is accepted by both parties in writing, our team will schedule a kick-off meeting to explain common due diligence issues and to get an agreement on the path to closing. Our firm will assist with due diligence, document production and inspections of equipment. The due diligence period can last anywhere from 60-180 days depending on the complexity of the transaction and whether a bank is involved. Is there SBA financing for the buyer?

• As soon as all the conditions are satisfied, a closing will occur and the Seller will begin their training and transition of the business for the agreed time period. After the transition period is completed, usually within 3-12 months, the transfer will be complete.

#8 What is the Typical Commission rate charged when Selling a Business?

• The commission rate charged by a business broker when selling a business can vary, but is typically a percentage of the sale price. The standard commission rate for business brokers is usually between 5% and 10% of the sale price, although it can be higher or lower depending on the size, complexity, and value of the business being sold.

• In some cases, a business broker may negotiate a lower commission rate in exchange for a higher base fee, or a flat fee instead of a percentage-based commission. The terms of the commission arrangement will typically be outlined in a written agreement between the business owner and the broker.

• It's important to keep in mind that commission rates are negotiable, and business owners should shop around for a broker whose services and commission rate align with their needs and budget. In some instances there will be an upfront “marketing fee” that will cover some of the hard costs for listing the business on 3rd party websites such as www.bizbuysell.com.

#9 Should I Use a Business Broker?

Whether or not you should use a business broker when selling a business depends on a number of factors, including the size, complexity, and value of the business, as well as your own experience, resources, and time constraints. Some of the benefits of using a business broker include:

• Market knowledge: Business brokers have extensive knowledge of the market and can help you determine the best price for your business.

• Confidentiality: Business brokers can help maintain confidentiality during the sale process, which can be especially important for business owners who don't want to alert employees, customers, or competitors.

• Networking: Business brokers have a network of professionals, search group buyers, CPA’s and CPA firms, buyer databases as well as subscriptions to 3rd party websites such as www.bizbuysell.com.