How to Save Time and Sell a Small Business Without a Broker
If you’ve decided to sell your small business, you’ll need help. Many owners retain the services of attorneys and CPAs to provide expertise during the sale process. While some founders hire business brokers, others are able to successfully sell the business without a broker’s help.
This article explains why an owner may sell the business without a broker, and the steps that are necessary to close a sale. You’ll also learn why the services of an attorney and a CPA are important, even if you choose to sell the business without a broker. Finally, you’ll read about the benefits of Raincatcher’s Sell By Owner program.
Reasons to sell without a broker
Here are some reasons why a firm is sold without the services of a business broker:
- Distressed sale: If an owner is selling a company that carries a large debt load, the sales proceeds may not pay off all of the firm’s liabilities. The owner may not have cash available to pay the broker’s fee. Raincatcher represents some distressed businesses so reach out to us to learn more.
- Seller relationship: A sale to a family member, key employee, or a business peer may not require a broker. In this case, the buyer and seller know each other, and the sale may take far less time and effort to negotiate.
- Established price: If the price has already been negotiated with the buyer, a broker may not be necessary. If partners A and B have a written agreement that includes a formula for a sale price, one partner can sell to the other without the need to negotiate a sale price.
- Experience with company sales: If the owner has sold multiple businesses in the past, he or she may have the skills that a business broker would provide.
If you choose to sell your business without a broker, you’ll need to invest time to prepare for the sale in advance.
Preparing for a sale
The first step is to assess your business, and to make changes to enhance the value of the company.
Enhance company value
Business purchasers are looking for firms that have these traits:
- Competitive differentiation and uniqueness in the market: If consumers view your firm as unique and different, they may become repeat customers and be willing to pay more for your products.
- Track record of sales, positive cash inflows, and net profits: Your business must be able to grow sales, increase profits, and collect cash in a timely manner. Profits may not be enough to attract a buyer. You also need the ability to collect cash inflows to operate the business.
- Recurring revenue streams: Firms that generate recurring revenue, particularly those that have subscription revenue, are particularly attractive. These firms have a more predictable revenue model.
- Carve a profitable niche: Niche businesses may have less competition, and they can become experts that have a deep understanding of the customer’s needs.
- Create a disruptive product or service: If you offer a product or service that disrupts an industry, you can charge a high price and still drive sales.
If a buyer shows a strong interest, you need to be ready to provide more information.
Gather a complete set of records
Create a complete set of financials, which may include these records:
- Financial statements: Balance sheet, income statement, and possibly a statement of cash flows for the past three to five years
- Contracts: Employment agreements, vendor contracts, leases, and other legal agreements
- Customer lists, market research, marketing plans
You should have an attorney write a non-disclosure agreement (NDA), and have each potential buyer sign the NDA before you provide sensitive information about your business. Have these records organized and ready for review, so that you can provide the records quickly.
As the owner, you’re the individual best positioned to explain why your business is valuable. Create a marketing plan to market your company to prospective buyers.
Marketing your business
You can market your business by working your professional network, and by advertising on business sale websites.
You can post an advertising listing on Raincatcher’s Sell By Owner listing website and other sites. Some sites earn listing fees from the business owners that advertise their companies but Raincatcher includes their listing website as part of their Sell By Owner Marketing & Listing program. Potential buyers sign an NDA and complete a form to send the owner a message about the listing.
Speak with people in your professional network. Ask business peers, attorneys and CPAs if they know of any potential buyers for your business. Attorneys and CPAs often work on business transactions, and they may be able to refer you to a buyer.
Qualifying buyers, and due diligence
Ask each potential buyer for a personal financial statement, in order to verify that the buyer has the ability to buy your business. The statement will list the buyer’s assets, which may include other businesses. A buyer may also provide documentation that they have financing to buy the business.
If a potential buyer has the interest and the financing to purchase your business, start the due diligence process. Organize your records and plan meetings so that the buyer can review your documents in detail.
The due diligence review includes financial, marketing, and operational details that you use to manage your business. As mentioned above, ask an attorney to write an NDA, and have the buyer sign the NDA before you share documents.
If you provide information quickly, you can keep the due diligence process on track and move the potential buyer closer to making an offer.
Negotiating the sale price
A buyer will analyze the sales of similar companies, evaluate industry trends, and consider other market factors. Do your own research to understand the metrics that the purchaser is using to evaluate your business.
Talk with a CPA about the tax impact of the transaction. Will the buyer pay a lump sum, or will you receive sales proceeds over a period of time? Does the sale include company equity, or is the transaction a sale of assets? These factors impact how the sale is taxed, and the after-tax dollars you receive for selling the business.
Have an attorney review the legal documents that you provide in due diligence, and the business sale documents before closing.
To market and sell your company without a business broker, you need a tool to manage the process. Raincatcher’s Sell By Owner program provides the resources you need to sell your business.
Sell By Owner Marketing & Listing program
Raincatcher’s Sell By Owner program provides you with a comprehensive collection of online tools, software, marketing materials, and business listing services to help you orchestrate the sale (or transfer ownership) of your company yourself.
Included in Our Program:
- Access to Raincatcher’s support specialist team to help you through the marketing and listing process.
- Ballpark business valuation — Includes a 27-page report on the strengths and weaknesses of your business along with a Vertical IQ report and personal readiness to sell your business
- Access to eLearning courses to help you prepare your business as well as sell your business
- Access to deal project management software (for up to 6 months) – Allows you to track all buyers and marketing efforts +Walks you step by step on the closing procedure.
- Assistance creating marketing material
- Professionally designed prospectus
- Assistance posting your deal on various marketing websites
- Free business listing on Raincatcher Sell By Owner listing website
- Documents and tools to help you close the deal (PM Software)
- Due diligence data room (PM Software)
Use this program to restructure your business into a built-to-sell company, maximize value, and to find the ideal buyer for your business. Contact us today to sign up for the program and start your business sale process.