Selling Your Business, Part I

By Bill Snow

The decision to sell your business or bring in a new investor is often confusing, frustrating, time consuming, and expensive.  As difficult as that decision is, the process can be even more difficult.

Business owners have spent their time building their businesses, not necessarily selling those businesses.  The business sale process is an entirely new and different business, and as a result, many business owners are unfamiliar with the process.

Reasonable Expectations

No, it’s not a mediocre Dickens novel; it’s what a business owner should have when selling a business.  “Reasonable expectations” does not mean undervaluing your business; it means a seller should expect a buyer’s offer to be based on today’s reality — financial performance, company and industry trends, market conditions, etc. — and not necessarily what that business may have been able to fetch a few years ago when sales and profits were higher and buyers were paying higher multiples of earnings.

Valuation is not a fiat accompli

Due to the recent economic slowdown many companies have shrunk and become less profitable, yet many business owners are holding on to peak year valuations.  Worse, those business owners often believe that the peak year valuation should be readily apparent to all bidders.   Unfortunately, that’s rarely the case.

There are ways to get a compelling valuation in a down market, but the seller has to provide a roadmap for the buyer, and quite often that roadmap – or valuation proposition – will be different for different buyers.  Business owners often over look this simple and basic fact due to myopia.  They are so focused on their business that they become biased as to the valuation. The bottom line for the business owner?  Make your case; don’t expect the other side to do it for you.


The key to selling a business, especially if a compelling valuation is the goal, is communication.  The seller needs to be able to explain the valuation propositions to the buyer, repeatedly explain those value propositions, stay on top of the selling process, proactively prepare for objections and the inevitable pushback from a buyer, and most importantly, rapidly respond when a buyer has an objection or discovers a problem.

This needs to be done accurately and honestly.  Tout strengths, yes, tell the story, absolutely, but also disclose problems and potential issues.  These “warts” will mostly likely come out during due diligence, and if a seller discloses these issues early in the process that seller will be able to frame the discussion.  Here’s the key when disclosing issues or problems: Don’t editorialize; just provide the facts and leave it at that.

You can’t do it alone

Well, I suppose a seller could do it alone, but that wouldn’t make much sense.  A seller will need: 1) An attorney to draft (or edit/revise) the purchase agreement; 2) accountants to count inventory, audit or review the numbers, and more importantly, interface with the buyer’s accountants; 3) advisors to negotiate the deal and to make sure it gets across the finish line.  I strongly advise sellers to do some planning with a wealth advisor BEFORE the process, especially if the seller is contemplating retirement.  As amazing as it may sounds, a seller may discover that the lifestyle he wants to lead post-sale will require less money than previous thought.  It just takes specific planning instead of back of the envelope guesswork.


Invariably, and especially in today’s market, a buyer and seller will have a gap valuation.  If both sides are willing to be creative, structuring can help bridge valuation gaps. While cash at closing is great (and definitely preferred), the seller may be able to garner a larger price if he is amendable to earn-outs, stock, or accepting a note from the buyer.

How do you know when you’ve got a deal?

Signing a term sheet or a letter of intent (LOI) does not mean you have a deal.  In many ways, the LOI is simply the beginning of the process.  So when do you get across the finish line?  When the money hits your account.  So this begs the question: How do you know you have a real buyer?  That will be answered next time!

Bill Snow is the Managing Director of Investment Banking at Cambridge Partners & Associates, Inc. Bill is also the author of Mergers & Acquisitions for Dummies. Visit Cambridge Partners Investment Banking and for more information.