When you put your business up for sale, you anticipate the day when offers start to come in. It generally takes between 6 and 12 months to finish the sale so it’s very common for there to be some anxiety over what those initial offers look like. Patience is important. These things don’t happen overnight.
It’s not uncommon to get more than one offer for your business – if you’ve hired the right broker to help you through the steps. In a perfect world, these offers all come in at the same time. But that’s usually not the case. Your broker should continue to follow through on your marketing plan once an initial offer is received and encourage other good potential buyers to place an offer before it’s too late. This helps to maximize the price.
So, let’s look at the offers our fictional business owner Steve received. (Read more about Steve’s story to this point in Part 1 and Part 2)
Offer #1 is from a buyer Bridgepoint had in their database.
The offer is low at only 60% of the asking price. The terms of the offer also aren’t what he’d hoped for. The buyer is asking for a transition period that would keep Steve in the business for 2-3 years after the sale. The price and the transition would really impact their retirement plans. Another surprise is the buyer’s intent to cut the company workforce by almost 30% which is hard for Steve to accept. His employees have become like family and he doesn’t want to see anyone lose their job.
Steve and Heather are like all of us. They know the assessment they received from Bridgepoint gave them a range to expect as well as suggestions on the most favourable terms of the deal. And, while they are prepared to accept something on the lower end of the range, they really hope for a high-priced offer that includes the best-case terms. When the first offer comes in, they’re a bit disappointed with both the price and the terms. Is this the best price they’ll get for the business? Is the business not really worth what they think?
When you receive an offer that isn’t what you’d hope for, it’s a good idea to go back to the original assessment you’d received. Your broker should have given you a range for both price and terms. Is the offer consistent with what the original assessment suggested?
Offer #2 came in 3 weeks later from a buyer Bridgepoint identified through their targeted search efforts – a process used to identify the most likely strategic and financial buyers early on and get the opportunity in front of them. As soon as the initial offer came in, we were in continuous contact with this buyer to ensure they got their offer in on time before Steve decided to proceed with Offer #1.
This offer comes in at 80% of the asking price which reassures Steve and Heather as they continue to look forward to retirement. Steve feels like this price is a good reflection of all the hard work he’s put in over the years.
Steve is impressed with the buyer. Not only did he consult with Steve about a flexible transition period, but he also shared that he hoped to grow the business, which meant keeping the employees after the sale. This buyer and terms are more to Steve’s liking.
Accepting an offer for your business isn’t always about price. If both of Steve’s offers were the same price, his assessment of the terms and the “trust” and “likeability” of the potential buyer are equally important factors. Nobody wants to leave their business to someone they don’t like or have confidence in.
Accepting an offer and due diligence
This is arguably the biggest hurdle in selling your business. Choosing your buyer and working through due diligence means you’re in the final stretch.
There are still a few things you need to do at this stage:
Continue business as usual because stability is key to keeping a buyer interested in closing.
Promptly and reliably provide all due diligence items to the buyer
Be prepared for some negotiation of both price and terms. This may include sitting across the table from the buyer to work out some of the details.
Prepare yourself and your family for the transition period.
Once you’ve chosen an offer to accept, it’s normal to experience fear (will the deal go through) and doubt (did I get the best deal possible) combined with excitement (retirement is close at hand).
Both scared and satisfied, Steve has some worries about what would happen if the deal fell through. But he likes the buyer and feels good about the terms and leaving the business in his hands. It has been a bit of a roller coaster ride during due diligence disclosing everything the buyer has asked for. And Steve sometimes feels like he’s “abandoning” his employees – especially his son who chose not to take over the company in order to pursue other interests. But most of all, Steve and Heather are really excited about the next phase of their life and know that them and their business will be better off.
After the sale
Congratulations! You built that business and you should be proud that it’s transitioning into new ownership who will take it into its next phase.
All transitions are different and have different requirements for the exiting owner. You might be going to work at the same place, but in a very different role.
Steve is 6 months away from retirement. He’ll work with the new owners for half a year, which will mean he’s ready to go to Arizona with Heather just after Christmas. It took a few weeks to feel comfortable in his new role at the company with someone else at the helm, but it has also reassured him that he made the right choice about the buyer. He still wonders sometimes if he could have got more for the company, but ultimately it gives them the retirement they want and he’d always promised. He’s looking forward to his next adventure.
Do you want to talk about selling your business?
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