In this final installment of our Sell Wisely series, we evaluate the do-it-yourself route vs. hiring an expert M&A advisor to help sell your business. Either way, you’ll want to be as deliberate and well-informed as possible. Some crucial factors in the decision include your company structure’s complexity, your mergers and acquisitions expertise, and your available resources. (Spoiler alert: you may be surprised to learn that using an experienced broker can be a more cost-effective decision than conducting the sale yourself!) We’ll dive deeper into these considerations throughout the article, but suffice it to say it’s a lot to navigate on your own.
Read on to explore critical considerations when choosing between these two approaches and weigh the pros and cons of each. By the end, you’ll be able to determine the path to achieving the best outcome in your business exit.
Selling Your Business on Your Own
Conditions for Independent Selling
As a business brokerage with nearly three decades of experience, we’re strongly in favor of SMB owners enlisting professional help to sell their companies. However, we want to see you succeed, even if you decide to forge ahead on your own. Here are a few example scenarios in which a DIY approach to selling your business might be practical:
You’ve sold a business before.
A prior sale provides valuable insights into negotiating tactics, understanding market dynamics, and managing the intricate details of a transaction. Your familiarity with the intricacies of a business sale—such as due diligence requirements and maintaining confidentiality—equips you with the knowledge and confidence needed to navigate the process effectively. However, every deal is different, and it’s essential not to take a one-size-fits-all approach to selling a business. An experienced broker can help you tailor your approach to the current sale so you don’t overlook any critical details or considerations.
You’re selling your business to a family member or employee.
Selling a business to a family member or employee can help you navigate a business sale independently because of the inherent familiarity and trust in the relationship. The buyer’s pre-existing understanding of the business operations and culture can streamline the transaction process, reducing the need for extensive due diligence. Your existing connection with the buyer also facilitates smoother negotiations, allowing for more transparent communication and collaborative decision-making throughout the sale.
You have established relationships with professional advisors who sell businesses regularly.
Having trusted advisors, such as investment bankers or business brokers, on your side can provide you with access to industry expertise, market insights, and a network of potential buyers. You can ask these seasoned professionals for strategic advice on valuation, negotiation tactics, and deal structuring. The rapport with trusted advisors allows you to tap into a wealth of knowledge and support throughout the sale process, enhancing your ability to make informed decisions and optimize the transaction’s outcome.
Challenges and Risks of Independent Selling
While some deal scenarios may be more straightforward to navigate independently, none are without their potential pitfalls. Here’s an overview of some of the common obstacles you may face when taking a DIY approach to selling your company:
- Valuation Difficulties
Determining the accurate market value of your business can be complex. Overvaluing it may deter potential buyers while undervaluing it can lead to financial losses in the sale. Additionally, remember that buyers are looking for deals — and they try and get them by going directly to the business owners.
- Marketing Expertise
Effective marketing and advertising are crucial for attracting qualified buyers. Business owners may need help creating compelling listings, finding the right advertising channels, and reaching a broad audience. On the other hand, experienced brokers have a deep well of potential buyers and the know-how to connect SMB owners with the right ones.
- Confidentiality Risks
Maintaining confidentiality during the sale process is essential to avoid disruptions in your business or the departure of key employees. Unfamiliarity with what information must be kept private can lead to disclosures that jeopardize your sale.
- Legal and Regulatory Compliance
Complying with local, state, and federal laws and regulations throughout the sales process is critical. A lack of legal expertise can lead to legal complications and liabilities.
- Negotiation Skills
It’s crucial to recognize that when you deal directly with a buyer, they are often professionals at buying businesses. If you are not, you can run into problems. Negotiating the terms of the sale, including price, payment structures, and contingencies, requires strategic experience and strong negotiation skills. Inexperienced sellers may leave money on the table or agree to unfavorable terms.
- Emotional Attachment
As a business owner, you likely have strong emotional ties to your company, making it difficult to remain objective during negotiations. Heightened emotions can complicate the decision-making process.
- Time Commitment
Selling a business is a time-intensive process that will distract from day-to-day operations. Remember that with an unsolicited offer, a signed LOI is still a long way from closing a deal. Trying to navigate that process on your own can be extremely challenging. Going it alone while balancing both responsibilities — running the business while selling the business — is daunting, exhausting, and can negatively affect the business’s performance.
- Post-Sale Liabilities
If the sale is not structured correctly, you may remain liable for future claims or issues related to the business, even after the transaction. For instance, if a business owner sells a manufacturing company without adequately addressing product warranties or potential environmental liabilities in the sales agreement, they could be exposed to future legal claims arising from defective products or environmental issues.
While independently selling a business is possible, knowing these potential pitfalls and challenges is crucial. If you choose the DIY route, thorough research and preparation are essential, and it’s advisable to consult with professionals for specific aspects, such as legal, financial, or tax matters, to mitigate these challenges and ensure a successful sale.
The Benefits of Hiring an M&A Advisor
If you want to achieve the best possible outcome — financially and otherwise — when selling your business, there’s no substitute for employing a reputable, experienced business broker. Let’s look at the incomparable value a mergers and acquisitions (M&A) expert adds to an SMB sale:
Value Added by M&A Advisors
Experienced M&A advisors bring tangible and intangible value to the table when assisting in selling a business. First, they offer a wealth of expertise in navigating complex negotiations, conducting due diligence, and structuring deals to maximize financial returns. Their knowledge can lead to higher sale prices, more favorable terms, and a smoother transaction process. Many brokers also possess extensive networks that can connect sellers with qualified buyers and financing options.
Second, professional brokers provide a sense of confidence and security, reducing the emotional burden on business owners. They act as impartial intermediaries, facilitating communication, managing disputes, and ensuring confidentiality. Ultimately, their combined tangible and intangible contributions enhance the likelihood of a successful and profitable business sale.
A Wise Investment: Understanding Advisor Costs
The cost structure of hiring M&A (Mergers and Acquisitions) advisors can involve fees and commissions, which may vary based on the complexity of the deal and the specific services provided. The seller incurs these costs, and they may include:
- Retainer Fees: Some M&A advisors charge an upfront retainer fee to initiate the engagement. This fee covers the initial evaluation of the business and the development of a sales strategy. (Note that Viking M&A does NOT charge retainer fees.)
- Success Fees (Commissions): The central portion of the cost structure is usually the success fee, which is a percentage of the final sale price. The seller typically pays this fee upon the successful transaction closing. (This is the only fee Viking M&A charges. You do not pay anything if your business does not sell. Our interests are always aligned with yours, and we do not get paid until you get paid.)
- Hourly or Project-Based Fees: In some cases, advisors may charge for their services on an hourly or project basis. These may include services like financial analysis, due diligence, or legal consultation. (Viking M&A does NOT charge hourly or project-based fees.)
- Expense Reimbursement: Out-of-pocket expenses incurred by the advisors, such as travel, legal fees, or marketing costs, may also be passed on to the business owner. (Viking M&A does NOT charge out-of-pocket expenses.)
While there are costs involved with hiring an M&A broker, that shouldn’t deter you from enlisting one in your SMB sale. A broker’s in-depth market knowledge enables them to assess your business’s worth, ensuring it’s positioned competitively in the market. Advisors also bring valuable negotiation skills, helping secure favorable terms and mitigating potential risks. Lastly, their ability to conduct thorough due diligence and address legal and financial intricacies contributes to the seamless execution of the transaction, minimizing the likelihood of post-sale liabilities. Ultimately, the expertise and strategy an experienced broker brings to the table can be a more cost-effective decision than conducting the sale yourself.
Selecting the Right Advisor for Your Business
Hiring an experienced M&A broker is smart, and it requires more than selecting the first name that comes up in an internet search. It’s wise to be as deliberate about who you choose to conduct your sale as you have been about getting your business to where it is now. To help, we’ve identified four essential questions to ask when considering potential advisors.
Whatever firm or advisor you choose should be more than just a strong negotiator or an industry expert. (You can read more about that here.) SMB sales can be long and demanding, so you want someone with whom you have a strong rapport and who is committed to being around for the long haul. Some strategies for developing a productive working relationship with your advisor include:
- Clearly Define Objectives: Communicate business goals and expectations upfront for a shared understanding.
- Communicate Regularly: Foster open and regular communication with the advisor to stay well-informed and make necessary adjustments.
- Make Decisions Collaboratively: Involve the advisor in key decision-making processes to benefit from their expertise. And make sure they do the same.
- Share Feedback Openly: Establish a feedback system to provide constructive input on the advisor’s performance for continuous improvement.
- Foster Mutual Trust: Build trust through transparency and receptiveness to advice, creating a foundation for a smoother working relationship.
We’ve covered a lot of ground in our “Sell Wisely” series, and we hope this final installment illustrates how crucial it is to seek assistance from an expert when selling a business. Viking Mergers & Acquisitions is here for business owners at every step of the selling process, even if an exit is far off. The foundation of a successful transaction begins with an accurate business valuation, which we provide at no cost to qualifying businesses — no strings attached. Contact us today for expert advice on exit planning and business sales, and learn more about how Viking can help you sell wisely.