Chapter 5 “Don’t go it Alone” from Andy’s newly released book, “Closing the Deal”
Hire the Right Broker
Who is the right broker to sell your business? In our opinion, it’s not always a person who is intimately familiar with your business. Can that insider knowledge help? Sometimes, but is it relevant? We don’t think so. Would you hire a heart surgeon just because he knows you personally? No, of course not. Wouldn’t you rather have an expert surgeon—one that has done the procedure hundreds, if not thousands of times? That is what you want in a broker of your business: someone who knows the process and can help coach you through the complicated and often emotional journey. You need and deserve much more than someone that is familiar with your specific business or industry. You want someone that will find the right buyer, at the right price, and get the deal closed! Finding the right buyer is about casting a very wide net in order to attract that perfect someone or company to buy your business. Getting the right price and terms is having the ability to create competition for your deal. The more buyers you have, the better the price and terms will be.
Additionally, closing a deal without a buyer trying to re-trade during due diligence or even at the closing table can be prevented. It is best discouraged by the threat that there are other buyers waiting in the wings to step in if this one defaults on the deal. The right broker has the tools to succeed. He or she has a large network of brokers at his/her disposal and is willing to co-broker with them and split the commission. If your broker will not work with other brokers and share commission, I would consider moving on. Historically about a third of Transworld’s deals have multiple brokers. If your broker is the single source of buyer flow, you are hurting your chances for a successful sale at your desired price.
Case Study – NOT CASE CLOSED
We met with a very successful restaurant owner who
owned a Japanese/sushi place in Pennsylvania for over
30 years. He hired a friend from his community who was
a real estate broker to sell his restaurant and the
building it occupied. That broker “secured” a deal in the
form of a nonbinding letter of intent (LOI). He did not
explain that an LOI really doesn’t obligate the person
offering to buy the business to close on the transaction.
It got bad as the deal progressed. The restaurant owner
mistakenly closed his restaurant and went on vacation
for a month figuring he had sold his restaurant and
building. Near the end of vacation, he got a call saying that the
buyer couldn’t do the deal after all. He then had a closed
restaurant, no employees and a liquor license he wanted
to sell and no prospects to get a deal done. And now a
huge amount of the value of the business had vanished.
Your potential broker should also demonstrate personal success at closing deals within their network. How do they advertise? Do they spend money on the right portals? Can they work internationally? Do they leverage technology? Do they have a database of buyers? There are many metrics used for being able to properly market and network the sale. Again, less important is the question of “do they know my business?” What is more important is that they know business brokerage.
Lastly, is your broker someone you trust, and that others trust? Is he or she a trusted advisor in your community? Do they give back and give knowledge to others? Are they problem solvers in your community? This is a person with whom you are going to share intimate details of your business and financial affairs. This could be the biggest financial transaction of your life. Get the right person to partner who has the tools to execute and close the deal! Knowing that person is well respected by others in your community is certainly an indication they can be trusted.
Have the Right Team
We often liken selling your business to playing football. The broker is a good quarterback and you’re the player wanting to score a touchdown (sell your business). A good broker is going to call plays and leverage you and several others on the team to get in the end zone. The team is comprised of lawyers, accountants, buyer, bankers, landlord, you, and the broker. As quarterback, the broker needs to help you get in the end zone by calling plays, setting strategy, and using the other players to enable the whole team to move forward. When you have a deal, you’re in the red zone (right near the goal) and it is essential to work together to get over the goal line.
The broker is the only one in a transaction that can speak with everyone. Lawyers, accountants, sometimes the bankers and others may only speak to their clients and fellow professionals. And when there is bad news or tough questions to ask, you’ll want someone else to do it. Therefore, let all the information flow through the “quarterback.” If you keep answering the easy questions, you will eventually be obligated to continue to answer even the tough inquiries or negotiate for yourself.
In the end, you must be strong and make decisions based on advice from all your teammates in the deal. Most deals are difficult and will experience challenges along the way to the closing table. Don’t lose sight of your ultimate goal, which is to get a deal done. It is easy to be distracted by things that DON’T GO IT ALONE 51 may bruise your ego or small issues that will test your patience.
The Right Attorney
The key player on your team is your attorney. Your brother-in-law who has a general law practice may have done your will or handled your house closing, but he’s not the correct choice at this time. You need a specialist who has lots of experience with your size transaction. For most small transactions, an attorney who often works with business brokers is a great choice. If your business has less than $250,000 value, you are probably going to be best off with an independent solo practitioner. They have the ability to work on smaller deals and be flexible with their time and fees.
If you have a higher-valued or complicated transaction with issues like real estate, taxation, intellectual property, employment, federal or local licensing, financing, industry-specific nuances and so on, you may need a firm that has the resources to handle your business sale. The fees will be higher but selling your business correctly with the right protections and paperwork written by a capable firm is a very smart investment.
You need a “deal maker” who is calm, intelligent, and has sold small businesses in the past. Also, you and your broker need to drive the sale process, as attorneys and CPAs are risk averse. If they advise you to move forward and sell or buy, there is a potential downside for them. If you are selling, they may be losing a customer and revenue. If you are a buyer, CLOSING THE DEAL 52 they run the risk of you not doing well and holding them accountable. The best scenario they can hope for is your status quo: not selling or buying. Therefore, take their advice on legal issues, realizing that entrepreneurial risk will rarely be their choice of counsel. It is incumbent upon you to drive the process. You need to be the boss.
Case Study – GETTING INDIGESTION
We had a really nice business for sale, a two-location hamburger fast food business that had been around for almost 50 years and was a local favorite. A buyer came in before it even hit the market and had the inside track as he was friends with several members of the ownership group. His price was accepted, and he was ready to close. Unfortunately, his choice of counsel was misguided. The extremely large and overreaching contract, with many warranties to be assumed by the seller, scared the ownership group enough to call us to find another buyer. We were quickly able to find other buyers that agreed to pay more money and buy with a standard agreement with reasonable terms. It was a huge lost opportunity for the original buyer.