Small Business Owners Selling: Expectations vs. Reality

expectWhen it comes time for a business owner to sell his company, letting go of both his accomplishment and his control of the outcome can be something of a process. Part of this is because entrepreneurs often know how to start or run a business, but they do not fully understand its valuation when it comes to selling it.

Hiring a business broker can be an invaluable asset for getting a good price and selling in a timely manner, but according to at least one recent survey, business brokers and sellers often have conflicting ideas about how the sale will proceed in terms of finding a qualified buyer, timeline, and final sale price.

One of the first things an owner needs to come to terms with when it comes time to sell is that, no matter how much of his blood, sweat, and tears he’s put into building this company, when it sells it will no longer be under his control. Part of this process should ideally be accomplished before it comes time to sell, as owner dependence can be very detrimental to a sale. If an owner can distance himself emotionally, physically, and practically from the day-to-day running of his business before it’s listed, the outcome is almost guaranteed to be better.

When queried, 41 percent of owners stated that finding the right buyer was their most important sale goal. These sellers, unlike an equal 41 percent who stated that sale price was most important, believed that the business’s ultimate success and the welfare of the company’s employees were of greatest value to them. There was a disconnect, however, in how brokers and owners viewed prospective buyers. 62 percent of brokers believed that over half of potential buyers were qualified, while 54 percent of owners felt that less than half of this same group were, in fact, qualified buyers.

While it makes sense that brokers, who are far less invested in the ultimate success of the business, would have more a optimistic view on the buyer market, it’s objectively true that the current market for small business is better than it has been in a longtime. This doesn’t mean that it’s a seller’s market, though. Owners who prefer a certain kind of buyer while still seeking the highest sale price possible will have to be flexible on how long it will take to find that buyer.

Unsurprisingly, brokers and sellers also had different ideas about what an average timeline for a business sale looked like, with brokers believing the process will take months longer. The median time to sell a business over the past two years has been 172 days, or approximately 6 months. Of course, individual experiences will vary depending on a number of factors including geographical area, financing, and the type of business. Still, entering this process with some built-in patience will only make it less frustrating for everyone.

Finally, business brokers were more likely to believe that sale price was the deciding factor for sellers, no matter what sellers stated. They were also more confident that they would get the final sale price at least close to the initial asking price when all negotiation was said and done. Only 54 percent of owners agreed with this. This may be because brokers, being more familiar with the process and all the factors determining sale price, communicate this to their clients and list more realistically. Owners were less likely than brokers to believe that financing is necessary to closing a deal and that loan payoff length would be less than two years.

Recognizing that these differences between owner and broker perception and expectations exist, Calder Capital takes the time up front, prior to engagement, to educate business owners as to how business buyers approach business valuation, how they often structure transactions, and, very importantly, how banks are presently financing transactions. Additionally, Calder ensures that owners understand how the process of selling a business works and helps them to recognize that oftentimes there are elements that are unpredictable.

For example, if you own a profitable manufacturing company, chances are there will be a lot of interest – perhaps serious interest from 40-60 buyers. While Calder does the work of obtaining confidentiality agreements, financially qualifying and interviewing potential buyers, it is important that owners also take the time to meet these buyers, get to know them and explain their business to them. Like dating, this is a process where an owner is going to meet a lot of attractive candidates, but they must choose one to marry. As one might imagine, there are various emotions that occur along the way, including initial nervousness, happiness, disappointment, tension, stress, concern about the unknown thoughts of the other person, and so forth.

So while selling your company is rightly comparable to heading into uncharted waters, it’s important to work with a partner who can help you know what to expect not only financially, but psychologically and emotionally.

No matter how you go about selling your business when that time comes, it will certainly pay to become familiar with all the aspects of the sale. If you believe a sale is in your future and would like a free consultation about what exactly is involved, contact Calder Capital today.

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