When it comes to selling a business, there is more to it than just relaying the facts. It’s also important to emphasize the story behind the business. Business brokers and M&A advisors are also storytellers, as they must convey to buyers the story behind the business and how it can ultimately be transformed. 

It is through storytelling that humans organize the information they have about the world. In short, storytelling is an exceptional way to learn lessons in life and a great way to frame information about a business to sellers. 

Telling Your Story

Everything begins with the financials, in short, the facts of the business. When a business broker or M&A advisor begins working with a seller, he or she will look to gather those details. Once that information has been gathered, it is possible to begin to create a story. That story can be presented in many ways, including through a confidential business review or confidential information memorandum.

While many, if not most, buyers and sellers may think that when it comes to business, they are cold and methodical like a reptile on the hunt, the truth is more complex. Human emotion always comes into play. It is no accident that well-crafted stories, with their power to motivate and guide, play a role in the art of buying and selling businesses.

Decisions are Guided by Emotion

If we want to make the best decisions, it is important to consider the role of emotions in our decision-making. “In order to have anything like a complete theory of human rationality, we have to understand what role emotion plays in it,” said scientist Herbert Simon who is an American Nobel Laureate. ^[1]

Good stories grab the imagination and enable people to expand their definition of what is and is not possible. When buyers are considering buying a business, it is important that they can picture themselves as being the hero that transforms that business and takes it to a new level. It is a story of evolution and reaching new heights while simultaneously achieving one’s own goals.

It is no accident that so many of today’s mass culture storytelling revolves around sequels. The notion that there is a “storytelling continuum” where a buyer can plug into something that already has a history can be a powerful motivating force. Most epic stories have the hero as part of some sort of continuum. In other words, the hero does not simply appear out of nothingness. It is the hero’s mission to transform the world, in some fashion, for the better.

[1] https://www.forbes.com/sites/forbescoachescouncil/2018/05/09/how-your-emotions-influence-your-decisions/?sh=7bda49da3fda

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Are you thinking of transferring your business to a family member? This occurrence is fairly common, especially among small businesses. Here are some considerations that will help with your planning and decision making.

Do You Have a Good Contract?

Sometimes close family members are tempted to skip a contract, but it’s always a mistake not to have things in writing. When you create a buy-sell agreement, it helps keep things clear between the parties involved. Make sure that your documentation is thorough. It should cover a wide variety of details including the amount being paid, your continued involvement, and the business value. 

Does Your Family Member Need Financing?

When it comes to selling businesses to family members, seller financing is common. You could even consider agreeing to a private annuity. This will allow payments to be spread out over many years.  One benefit to providing financing assistance is that you will receive a steady stream of income along with interest on the loan as well. 

You could also consider a self-cancelling clause on your installment note. This would allow debt to attach to your will in case of your untimely passing before the payments were complete. 

Are You Selling or Gifting Your Business?

Gifting a business takes place more often than you might think, due to the tax benefits involved. Also, when you gift a business, you can still maintain some level of control. 

The federal gift tax exemption changes every year. In 2022, the annual gift tax exclusion is $16,000. The lifetime gift exemption limit is $12 million. While you may owe some federal gift taxes if the amounts exceed the exemption limits, the good news is that after you have transferred your business, any future growth of the business won’t affect your financials. 

Is Everything Accurate?

Unfortunately, many business owners have acted unethically when it comes to transferring their business to their family members. As a result, the IRS tends to give this kind of transaction extra scrutiny. You will want to ensure that all your paperwork is in proper order and highly accurate. 

You may very well want to hire the services of a lawyer and accountant to assist you with this matter. Of course, a business broker or M&A advisor will also help you with the details of this agreement and figuring out what benefits you and your family members.

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When it’s time to sell a business, you will want to keep confidentiality first and foremost in your mind. The reality is that many deals do not succeed when confidentiality is breached and others learn that your business is for sale. Let’s take a look at why this is the case.

What Can Occur When Confidentiality is Compromised?

If vendors or suppliers find out that your company is for sale, it can negatively impact your business in different ways. One common occurrence is that vendors begin to change the terms they have established with you. Even a small change might end up not being minor at all, as it could impact cash flow. The same can be said for word of your business being for sale reaching your creditors, as they could also suddenly change their terms. 

Another major issue that could be caused when confidentiality is breached is that your employees and customers might begin to worry. Employees could even start looking for new jobs. Your customers might worry about the new ownership and preemptively stop patronizing your business.

It goes without saying that you won’t want your competitors knowing that you are selling your business. This might make them more aggressive, and they could even start using this knowledge to take your customers. 

On some occasions, business owners set out to sell their business on their own. Unfortunately, this decision can put them at higher risk for confidentiality breaches to occur, which start to cause things to go wrong. When you are in the process of selling your business, you will want everything to appear as steady and reliable as possible.

Keeping Up Appearances

When a buyer is carefully vetting your business for a potential acquisition, you won’t want anything showing up on the radar that could give them pause. It’s important to show that the business is continuing to operate in a successful manner and there have been no recent changes. 

The good news is that business brokers and M&A advisors have proven strategies that will keep the news that your business is for sale confidential. Your brokerage professional will be sure to vet all prospective buyers, and they will use the most reliable confidentiality agreements that will protect your best interests. 

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No one ever said selling a business was predictable. However, the truth of the matter is that every sale is different. Even the reasons behind a business owner deciding to sell his or her business vary tremendously. If you are getting ready to sell, it’s important to be aware of the various aspects that could catch you off-guard. If you are prepared for the unexpected, you’ll be mentally ready for the sales process, which often does not go as planned. Even the smoothest and most streamlined sales encounter a few road bumps along the way. 

Price Considerations

When it comes to the price structure for a potential sale, many business owners have numbers in their minds that do not meet with reality. As a result, a potential offer could be far less than what they expected, and this causes conflict and delays. Your brokerage professional will prepare you with a thorough valuation so you can have a clear idea of the fair market price of your business. Be sure to ask any questions that you might have so that you feel fully informed when it comes to prices.

Confidentiality 

Throughout the sales process, confidentiality must be carefully guarded. Otherwise, this too can interfere with a sale. Your business broker or M&A advisor will have effective strategies to help maintain the highest levels of confidentiality. Even with the best safeguards in place, there is a small chance that a rumor could begin to circulate and word could get out to your employees, customers or supplies. In the case of this incident, it’s important to have a contingency plan in place to quell the rumors. 

Your Stockholders

Oftentimes, business owners of privately owned companies forget that their minority stockholders have rights too. You will not be able to sell your business without dealing with all parties involved. When you get a “fairness opinion,” it can go a long way to convince your shareholders of the best price and terms. Even if your shareholders are members of your family, they will have to be successfully dealt with before the sale goes through. 

Expect to Allocate Time

You may have hired an experienced business broker or M&A advisor, but you should still be prepared to spend some time dealing with the sale of your business. You’ll be expected to do everything from prepare documents to meet with prospective buyers. This fact that selling will take up your time is particularly true if you haven’t begun making preparations years in advance. That’s why we advise clients to start working with us early on.

You’ll want to make sure that despite your need to focus on elements pertaining to the sale of your business, it is necessary to keep your business running smoothly. Otherwise, any signs of weakness could interfere with your potential sale and your efforts could backfire. This issue just stresses the importance of preparing to sell years in advance. 

Through the sales process you must still run your company as well as ever. You’ll want to make sure things are progressing nicely, even if you don’t plan to own the company in the near future. Obviously, your buyer will want things to look reliable and any dips can trigger a red flag. 

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There can be no doubt that the quality of your employees will directly impact the quality of your business and its long-term value. Employee quality and the success of your business are intrinsically linked. Unfortunately, far too many entrepreneurs learn this lesson too late, and their businesses suffer as a consequence. Employees who do not feel invested in a business and its long-term growth and success can damage your business on a daily basis. 

The quality of employees stands as one of the most important factors that entrepreneurs should consider before buying a business. With this fact in mind, it is critically important that business owners do everything possible to put together a great team. 

It’s important to keep in mind that your employees can be either an asset or a detriment to the success of your business. A dedicated and knowledgeable team of employees will help boost not only a business’s bottom line, but also its value when it comes time to sell.

Along similar lines, if you’re considering buying a business, you should take a careful look at how much work the current owner is responsible for and how well they are supported by the staff. If the owner is shouldering too much work and not relying on capable employees, then owner burnout can be a real possibility. Remember that the amount of work the current owner is doing could be what you’re facing down the line.

It is also important to consider the loyalty of employees and how likely it is that they may quit and join a competitor. Potential buyers should carefully evaluate employees and how they operate before signing on the dotted line.

At the end of the day, most businesses are only as strong as their employees and management. It should come as no surprise that employees who don’t feel invested and are just doing the “bare minimum” to not get fired are not the kind of employees that help build a successful business. 

A successful business is one with longevity, and the future of a business depends on employees that care about the business. In doing so, they will work to ensure customer or client satisfaction and loyalty. There are many variables that you must consider before deciding to buy a business, but buyers should never overlook the strength of employees.

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The last thing that any business owner wants is for a sale to fall through over something that was completely preventable. The good news is that with proper preparation and planning, these mistakes can be minimized or avoided altogether.

Workforce Issues

One of the top mistakes that business owners can make is allowing for an unstable workforce. It should come as no surprise that prospective buyers want to buy a business that produces consistent results. A key part of business stability resides in a stable workforce. Having a great product or service and then knowing that you have good dependable people to deliver those goods and services is essential. Buyers will be looking for this when they make their buying decisions. 

Faulty Recordkeeping

You can be very certain that any serious buyer will want to examine your books for the last several years. It is only prudent to expect that a prospective buyer will look at every part of your financials, including everything from your operating costs to your sales history. Proper recordkeeping will help convey the message that you are a responsible business owner, and this in turn, will increase the perceived value of your business.

Delayed Improvements

Delaying key investments and improvements may sound good for the foreseeable future, but it can be costly in the long run. It also points to a lack of vision and planning on the part of business owners. If you’d like to maintain your business’ value for when it is time to sell, you must constantly invest in your future. This will help your business thrive today and grow in the future. 

Another mistake that business owners can make is to fail to innovate. In a sense, this failure often goes hand-in-hand with a failure to invest in the business. A business that is not innovative is one that may be seen as a business that is not well positioned for the future. 

Of course, every industry is different. For this reason, it is important that business owners evaluate their business, the competition, and what opportunities exist if they embrace a constant stream of innovation. It is key to note that innovation is not always about making grandiose and costly moves. Quite often, innovation is the result of adopting a different mindset and finding small ways to boost customer or client satisfaction and reach new customers.

Failing to Work with Professionals 

Business brokers and M&A advisors understand all of these variables. They understand the mistakes that business owners can make when preparing to sell their business. Just as importantly, they understand the steps necessary to circumvent them. Working with a brokerage professional well before putting your business up for sale will dramatically increase your odds of a successful outcome. You’ll also want a solid team of other professionals including an experienced attorney and accountant.

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In the day-to-day routine of running your business, it is easy to forget that eventually the day will come when you need to sell. The last thing that any business owner wishes to discover is that they are ready to exit, but they are hopelessly underprepared. One of the key ways to prevent this from happening is to prepare for the sale of your business as far in the future as possible. 

1. Always Look Ahead to the Future

Many experts consider not having an exit strategy to be a risky endeavor. 

So, what are some of the most important steps that business owners need in preparation for selling their business? The first step is thinking about your exit strategy on the day you found your company. 

If you build your business while keeping an eye on the fact that you will one day be seeking to be acquired, then you will adjust your plans and strategies accordingly. All of this means understanding the market and knowing exactly what prospective buyers want from a business. In other words, the sale of your business should be built into its very foundation.

2. Think About Prospective Buyers 

There are a variety of reasons why acquisitions occur. For example, sometimes it is an entrepreneur looking for opportunities, and sometimes it is a business in the same industry that is looking to expand. The more you can learn about the motivating factors that cause individuals and entities to buy businesses, the better positioned you will be. 

3. Constantly Network 

Another good idea is to constantly network and make connections. The more people you know, the better off you will be. You may be running and developing your business for decades. During this time, get to know as many people in the industry as possible. 

While it may be necessary to modify the exit strategy in the future, having one in place serves to create an invaluable framework for when the time comes to sell. A savvy business owner will have a well thought out exit strategy in place at the very beginning.   

When you work with a business broker or M&A advisor, you will also benefit from their professional connections and years of networking with buyers. Selling a business is all about preparation, making connections, and finding the right advisors and partners.

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