"The biggest mistake you can make with your broker is listing the business before conducting a thorough preparation of material information."
Here are some of our key principles that a seller should expect from their broker, which in our view underwrite the success of any sale. We recommend discussing the following with your broker from the outset.
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1. DO NOT RUSH A BUSINESS TO MARKET
Most failed business sales can be traced back to what happens before the business is listed for sale.
The biggest mistake you can make with your broker is listing the business before conducting a thorough preparation of material information.
It seems a simple enough concept, though you would be surprised how many brokers and sellers skip this step or do the bare minimum.
People selling their business ultimately prefer and benefit from professional advice with respect to pricing and strategy, which cannot be provided without assessing the right information.
2. THINK ABOUT YOUR PRICE OBJECTIVELY
Understandably, this is going to be difficult for most sellers to do. The conversation here with the broker is important.
Try and think objectively, have they given you the right advice on price? Does their assessment make sense to you, can they justify it?
Do they seem overly motivated to take the business to market? Are they happy to “test” the market?
Pricing the business out of the market can be incredibly damaging over the long run.
Knowing the true price, the business will sell for is the most valuable piece of information for the seller, even if it is tough to hear. It allows them to make an informed and strategic decision about what to do next.
3. PREPARE A SUITABLE BUSINESS PROFILE, FLOW PLAN OF SUPPLEMENTARY INFORMATION, AND TRANSACTIONAL DUE PROCESS
The journey a buyer will go through as they start interacting with a seller’s business is critical. As every business is different, it is wise to have a simple plan in place that is designed to structure the buyer's experience.
The aim is for their confidence to increase as they continue to interact with the business, the information, and the seller.
For example, the broker might first start with a phone call with the buyer, and compare their needs, objectives, strengths, and weaknesses to the business at hand. Are they a fit? Do you think the broker is competent at reading people?
Next, they will review the business profile or information memorandum. Followed by a Q&A with the broker. Does the business profile suitable represent the business? Review this with your broker and try and empathise with how a buyer might interpret the business after reading this. Is to too fluffy or unclear?
If their interest in the business has developed, think about what happens next?
Is it time for an offer, or should the buyer be entitled to review source information such as financial accounts?
How is disclosure with respect to customers, staff, business processes, and intellectual property treated?
When is due diligence appropriate, before or after a deposit, or is further down the track after contracts are exchanged? Is the deposit refundable, and does it buy exclusivity?
There are many ways to slice and approach a sale scenario. It is always best to hypothesise with your broker to discuss everything above and tailor an approach that is relative to the business. Perhaps there will be some flexibility needed with certain buyers, this is normal and can be considered on a case by case basis.
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