The main reason for selling a business in Charlotte, North Carolina, without the assistance of a business broker is both lack of trust and not wanting to invest in this very important life-changing process. Selling a business to a business buyer is entirely possible to navigate yourself, but it does require careful planning, preparation, and a good understanding of the process. The main caveats are losing focus on running your business and potentially leaving millions of dollars on the table by not ensuring a competitive business sale process. Here are some steps to consider if you're looking to sell your business in Charlotte without a business broker or M&A investment bank advisor:
1. Determine Your Business Value: Before listing your business for sale, you need to have a clear understanding of its EBITDA (earnings before interest, taxes, depreciation and amortization) and EV (enterprise value). EBITDA gives a business buyer the most accurate estimate of annual cash flow. Some business owners may consider hiring a professional business appraiser or business valuation expert to help you determine a fair market value for your business, but this is completely unnecessary and all but useless when negotiated with a business buyer. This valuation will not serve as the basis for negotiations with potential buyers. It’s better to understand a potential range of value based on business sale norms and standards. The true enterprise value will be determined in a competitive business sale process whereby the seller does NOT stipulate a price, but let’s the market determine the value – receiving multiple letters of intent or indicators of interest from professional qualified strategic and financial buyers proves value if professionally and tightly managed by an M&A professional.
2. Prepare Financial Documentation: Organize and prepare all financial documents, including tax returns, profit and loss statements, balance sheets, and any other relevant financial records. Buyers will want to review this information to assess the financial health of your business. A professional M&A advisor or business broker knows to safeguard your confidential information and provide only the necessary information at only the necessary time. For instance, you would never provide sensitive customer information, detailed financial information or a tax return before your sign a letter of intent and enter the official due diligence phase working to close an M&A sale transaction in 90 days or less.
3. Clean Up Your Finances: Buyers will be more attracted to businesses with clean financials. Address any outstanding debts, clear up any legal issues, and make sure your financial records are accurate and up to date.
4. Market Your Business: To find potential buyers, create a comprehensive marketing plan. For some, this may include creating a detailed business listing, using online business-for-sale platforms, advertising in local business publications, and networking within the Charlotte business community. This is not a good plan and follows the business broker route. To work to ensuring maximum value from a business buyer, you need to follow the M&A investment banking advisor playbook, which includes assembling a list of 50-75 highly researching and thoroughly vetted potential strategic and private equity business buyers and creating confidential marketing documentation to include: email/phone intro, blind summary, business overview, non-disclosure agreements and more. This toolkit is required for business sale success.
5. Confidentiality Agreement: When engaging with potential buyers, it's crucial to have them sign a confidentiality agreement (also known as a non-disclosure agreement or NDA). This protects sensitive information about your business from being shared with competitors or the public. Only after signing the NDA does the business for sale name and more detailed information be provided to a qualified business buyer.
6. Qualify Business Buyers: Screen potential business buyers to ensure they are serious, relevant and financially qualified. This step helps you avoid wasting time on unqualified or non-serious business buyers.
7. Negotiate Terms: Once you've found a qualified business buyer, negotiate the terms of the business sale. This includes the sale price or enterprise value, payment structure (e.g., lump sum or installment payments), and any contingencies (e.g., due diligence periods).
8. Due Diligence: Business buyers will conduct M&A due diligence to verify the information you've provided. Be prepared to provide a reasonable level of access to your financial records, contracts, leases, and other relevant documents. An M&A advisor should know exactly what to provide and when to provide it without jeopardizing the business valuation and M&A sale process.
9. Legal Assistance: Consider hiring an experienced M&A transaction attorney experienced in business sales to draft the purchase agreement and other legal documents. An experienced M&A attorney can help protect your interests throughout the process, they are a specialist and know how to efficiently handle the legal documentation around an M&A sale transaction. More often than not, an M&A investment bank advisor or business broker will recommend and add the proper attorney to the deal team, while ensuring legal fees remain reasonable for similar transactions.
10. Closing the Deal: Work with the business buyer to finalize the M&A sale transaction. This includes transferring ownership, handling financial transactions, and ensuring all legal requirements are met.
11. Transition and Support: Depending on the nature of your business, you may need to provide a transition period to help the new owner become familiar with the business's operations. Offering support during this time can be beneficial and, in most situations, you receive compensation or an employment agreement for your ongoing efforts.
12. Notify Employees and Stakeholders: Once the sale is complete, inform your employees and other stakeholders about the change in ownership. Be transparent and address any concerns or questions they may have.
“Confidentiality is key and minimizing any possible potential disturbance to the ongoing operations of the business for sale is vitally important,” comments Aaron Petrosky, a Charlotte, NC M&A investment banker. “We’ve completed transactions where the business financial controller did not know of the business sale until the day of closing. The truth is that small business and lower middle-market M&A transactions sometimes do not close for a variety of reasons and it's best to not cause your company or employees any undue anguish until there is absolute certainty in the M&A sale process”, adds Petrosky.
Selling a business without a business broker or M&A (mergers and acquisitions) advisor can possibly save you on some fees, but it also requires significant time and effort from you that takes away from the optimal running of the business. Also beware as the for sale by owner route does not assure you that the process is professionally managed, and that money is not left on the table. It's essential to be well-prepared and to seek M&A professional advice when needed, such as business consulting, legal and financial expertise. Additionally, maintaining confidentiality and attracting the right buyer are critical to a successful sale.
The M&A (Mergers and Acquisitions) sale process involves identifying and engaging with potential business buyers who are the right fit for your unique company. The choice of business buyer can significantly impact the outcome of the transaction and the future of your business. Here are some types of business buyers that may fit for your company during the M&A sale process:
1. Strategic Business Buyers:
Competitors: Strategic buyers may include companies operating in the same industry or a related industry. Selling to a competitor can lead to synergies, cost savings, and market dominance. In a competitive process, the strategic business buyer can oftentimes pay a higher price, but this is not always the case.
Vertical Integrators: These business buyers are typically companies within the same supply chain. Selling to a vertical integrator can streamline operations and improve efficiency. These business buyers can be strategic as well.
Horizontal Diversifiers: Horizontal diversifiers are companies in unrelated industries looking to diversify their portfolio. They may seek your company's expertise, customer base, or technology.
2. Financial Buyers:
Private Equity Firms: Private equity firms specialize in acquiring and investing in businesses. They often have access to substantial committed capital and aim to increase the value of the acquired company over a certain holding period before selling it for a profit. The vast majority of private equity firms highly prefer businesses with greater than $2 million in EBITDA (earnings before interest, taxes, depreciation and amortization).
Family Offices: Family offices are investment vehicles for high-net-worth families. They may seek to invest in companies with the potential for long-term growth and profitability. They mainly conduct their business similar to a private equity firm.
Fundless Sponsors: Individuals that act as search firms for private equity or family offices. They do not have a committed fund but act as a ‘finder’ to find and manage the deal, and often stay on in some capacity post-closing. These firms market themselves as private equity firms, but the clear distinction is not have the committed pool of capital within their firm.
3. Management Buyout (MBO) Teams:
In some cases, the current management team may be interested in acquiring the business they are currently managing. This can provide continuity and stability to the company's operations.
4. Employee Stock Ownership Plans (ESOPs):
ESOPs are a unique type of business buyer where the employees of the company purchase it. This can be a succession planning strategy, and it allows employees to have a stake in the company's success.
5. International Buyers:
Companies or investors from other countries may be interested in expanding their operations or entering the U.S. market through the acquisition of your company. This can open up new growth opportunities and markets. These are often strategic buyers.
6. High-Net-Worth Individuals (HNWIs):
Some wealthy individuals may have an interest in acquiring businesses for diversification or leveraging their industry expertise.
Individual Business Buyers: These buyers are often looking to buy a job after displacement from corporate America. This is who the business brokers mainly market to on BizBuySell or similar online business buyer platforms. These are typically lower price point business sale transactions under $1 million in enterprise value. Business brokers charge high fees in the 10-15% range of the sale price, enticing owners with the lure of no fees until the business is sold, then plastering the company and sale price tag on a website. Significant deals can be found by savvy business buyers in this highly fragmented and unregulated market.
7. Strategic Alliances or Joint Ventures:
Sometimes, forming a strategic alliance or joint venture with another company can be a step toward a full acquisition. This allows both parties to test the waters before committing to a complete merger or acquisition.
8. Specialized Buyers:
Depending on the nature of your business, there may be specialized buyers with unique motivations. For example, in the technology sector, buyers like patent trolls may be interested in acquiring intellectual property assets.
Selecting the right type of business buyer for your company depends on your goals and objectives for the sale. It's essential to conduct thorough due diligence on potential business buyers to ensure they have the business ethics, financial capacity, strategic alignment, and cultural fit necessary for a successful transaction. Additionally, engaging experienced M&A advisors or investment bankers can help you navigate the complexities of the M&A sale process, identify suitable buyers, market to buyers effectively, and negotiate favorable terms that align with your objectives. Ultimately, choosing the right business buyer is a critical decision that can impact the future of your company and the financial and operational success of the M&A transaction.