What Type of Listing Should I Sign?

Similar to when you are selling a house, when you engage a business intermediary you are going to sign a listing agreement. There are several types of listing agreements: Exclusive Listing, Exclusive Agency Listing and an Open Listing. An exclusive listing gives the broker the exclusive right to sell the business. An "exclusive agency" listing allows a broker to list and market your business, guaranteeing them a commission if they sell the business but it also allows sellers to seek out buyers on their own. An open listing allows the Seller to list with multiple companies.

Over the years of have had many business owners tell me they do not want to enter into an exclusive listing. Their reasons included: I want to be able to have many brokers try to sell my Company; What if I am not satisfied with the job you are doing; and, why should I pay you if I find a buyer myself. These are all understandable concerns that a Seller may have. However, it is important for the Seller to understand that not only are they less likely to sell their business with and open Listing or an exclusive agency listing, they are also at risk of harming their Company. Unlike the sale of a house, confidentiality is extremely important in the sale of a business. If employees find out the business is for sale they may leave out of concern for their job. Competitors can use information of a business for sale to steal customers away. Even vendors can become concerned and problems can result in the business operations. The more brokers trying to sell the business, the greater likelihood that confidentiality will be broken. However, more importantly, if a broker does not have an exclusive listing, they are less likely to spend time and financial resources promoting the business for sale knowing that another broker may find a buyer and earn a commission. Frankly, there is just not a lot of incentive for a broker to work hard knowing they may not make any money. So what can a Seller do to make sure that there are as many brokers working on their business as possible? There are two proven things to do. First, you want to work with a broker that is part of a National or International network. This way your business can be marketed through multiple offices. Second, work with a broker who is willing to co-broker. This will motivate other brokers to present potential buyers to the listing broker knowing they will be able to share in the commission. Finally, work out in advanced a reduced commission if you find a buyer for the businesses. I usually will reduce my commission by 40% if the Seller brings me the buyer. For more information on selling your business, please visit my website at www.empiresandiego.com

Your Selling Team

Great point Harlan. I absolutely should have included a financial broker as part of the selling team when selling your business.
As a business intermediary I am so use to recommending Lightning Commercial Funding to all of my buyers, I forget that not all brokers will recommend a top notch financing expert. Having all of the pieces for a business sale in place and then losing a deal because funding can not be obtained is a waste of time, money and energy by a lot of people. Don't forget to add to your team a financing pro.

Your Selling Team

Congratulations Larry on creating an excellent blog. You knowledge is one that needs to be shared in our business community.

Selecting and Hiring the right team is crucial not only to the selling of the business but also for the financing of the business. If the right team is not in place it will make it very difficult for a business to be sold with financing in place. Prequalifying your business should be part of the business process while getting your business prepared to be marketed by the business broker.

As a Commercial Loan Broker specializing in Business Loans, the prequalification is extremely important because it relates to how much a business can be sold for. I cannot recommend enough that you have a financial broker working with you once the listing is secured.

Putting Together A Winning Team To Sell Your Business

Who are the primary players you need when selling your business?
Just like in sports, the players on your team will make a big difference on whether you win or lose. If you were putting together a baseball team, you would not draft Wayne Gretzky to be your pitcher just because he has a well know name in sports. The same is true when building a team to help you sell your business. There are some important players you are going to need:

1. Attorney: Make sure your attorney has experience in business transactions. Even if an attorney has a well known name such as F. Lee Baily, Robert Shapiro, or Alan Dershowitz, that does not mean they are going to have the expertise you need for your transaction. You should interview several attorneys before making a decision. Find out how much experience they have in business sales transactions. Ask if they have worked on transactions similar to yours. Also, find out how much they think it is going to cost for their services. I have seen a lot of attorney's create documents that are much "thicker" than necessary at a high cost to the client. Good sources for attorney referrals with an expertise in business transactions are: escrow officers that specialize in bulk sales; business brokers; and former business owners that have sold their business.
2. Accountant: Just like with the attorney you choose, you need to make sure you are using an accountant with an expertise in business sales transactions. You may know an accountant who is great at preparing a tax return, but that does not mean they will understand the intricacies of a business sale. Using the wrong accountant can literally costs you thousands of dollars. The above mentioned referral sources in the attorney section would also be good for finding an experienced accountant.
3. Business Broker or Business Intermediary: When choosing a business broker, you want to make sure that they have specialized training in business sales. Also, it is important that the brokers primary business is business sales, not a real estate agent that also sometimes sell businesses. Discount brokers are also a red flag when choosing someone to represent you. Business brokers only have a limited amount of funds to advertise a business. When using a discount broker there is usually less money available for marketing, and/or the broker is only going to promote businesses they negotiated a higher rate with. Also, many brokers charge an upfront fee. However, I am a firm believer that a broker should only get paid if they close a deal. Paying an upfront fee takes away the motivation for the broker. Finally, choose a brokerage company that is not just a "listing machine", that signs up as many business as possible to represent knowing they will only be able to sell a limited amount of them. When a company has more then 7 -10 listings per agent, they are not able to give the attention necessary to effectively represent the business.
   
   For more information about selling a business, please visit my website at www.empiresandiego.com
   
   

Five Important Things to Do Before You Put Your Business Up For Sale

1. Preparation of Financial Documents: Typically, a buyer and lending institutions will require three years of financial information, including profit and loss statements, balance sheets and tax returns. Also, a business broker or valuation company will need this information in order to determine how much your business is worth. It is very important to assess these documents for accuracy and completeness. Accountant reviewed or audited financial statements will make the due diligence process a lot easier and will increase the likelihood of the deal closing. If you have time, and don’t need to sell your business right away, start cleaning up your books to reflect an accurate picture of the business at least three years before putting the business on the market. Remember, besides being illegal, most buyers will not pay for cash that an owner does not report.

2. Organize your Company Books and Legal Paperwork: Review the Company books to make sure that all corporate records are up to date. If necessary, take any corrective measures necessary to become current. Have copies of all your permits, licensees, vendor contracts, leases and employee contracts available. A buyer will most certainly want to review these documents during the due diligence process.

3. Understand the Tax Consequences: Many tax planning strategies to save you money when you sell your business need to be in place several years before you sell your business. However, if you didn’t plan in advance, it is still important to speak with your accountant or a tax expert to understand the financial tax consequences of selling your business. How the deal is structured can have a significant impact on how much taxes you will owe.

4. Clean up the Business: There is an old saying, “Don’t judge a book by its cover.” However, many people do, and a business that shows poorly may turn off a potential buyer. A clean, orderly business shows a potential buyer that the business is well managed and the owner takes pride in the Company.

5. Put a Sales Team in Place: Selling a business takes special skills and knowledge. Using an experienced business broker can not only increase the likelihood of a finding a buyer, but history has indicated that you will get a higher selling price. Also, you will need to find an attorney and accountant experienced in business transactions. An attorney or accountant who does not specialize in business transactions can cost you money or even kill a deal that should have closed.


To learn more about selling a business, please visit my website at http://www.empiresandiego.com/