How to sell your business — on your terms

By Max Oltersdorf
CEO and Co-Founder at Quiddity

Your business is making money but you’re ready to move on. Who do you sell to? How do you navigate the process?

Selling your business is more complex than just a handshake
Selling your business is more complex than just a handshake

You’ve been CEO of your business for the last decade or so and, although you love working, you’re ready to think about the sale process. And why not? Valuations are high and investment bankers and private equity firms are knocking. You know there are good actors out there but you’ve also heard horror stories of people selling their business, only to have it gutted and flipped 3 years later.

The 10–200 people who work for you are your family and you want to know that they are being taken care of and that you’re selling to a partner with the same values as you.

Where do you start? How do you sell your business?

Option 1: Call the people who’ve been calling you

Over the years, you’ve probably gotten calls from people looking to buy your business. But who are these people and how do you know they’re good actors?

Many good actors actually do use direct outreach as a tactic to find companies but determining a fit is crucially important. Some key questions to ask the firms who’ve been calling you are as follows:

  • A history of the buyer, including core values, industry focus, and track record
  • What type of firm are they (strategic buyer, private equity firm, search fund, fundless sponsor)? Do they have committed capital? How much?
  • What do they plan on doing with the company? Will it be fully incorporated into another company? Will it continue to operate independently? How long do they plan on owning the company?
  • What happens to me? Will I remain as CEO? Is there a transition period?
  • What happens to my employees?
  • What are your previous investments in my industry?
  • Rough valuation estimate and potential deal structure. How much of a company are they looking to buy? Do they evaluate companies on a revenue or EBITDA multiple? Do they pay cash-at-close or would there be an earn-out structure?

If you like their answers, it doesn’t hurt to explore a potential deal with one of those companies. Many times, they specialize in founder-owned transactions and if you feel like you have a good handle on valuation, they often can walk you through the rest of the deal process and you avoid the fee of a banker. Give them a call!

Option 2: Hire a banker or broker and run a process

If you want to run a more thorough process, you basically have to call a banker or business broker. It may be easy to simply call the guy who your uncle golfs with on Sundays, but choosing a broker is actually one of the most important parts of the deal process. Not all brokers are created equal and a large percentage of them will charge you an arm and a leg and not provide the level of value you’re looking for.

Look for a broker who has experience in your specific industry. If you want to sell your company to a buyer in a specific region, make sure you choose one who specializes in that region.

Get specific quotes on cost and ask what services they offer as part of their agreement with you. Will they draw up the legal contract or will you have to hire an outside lawyer? Will they assist in a smooth diligence process? What previous transactions have they done in your industry?

Unfortunately, brokers are expensive. For a business with less than $20m in revenue, expect to pay 2%-6% of the price of the deal as well as a $3000+/month retainer and $200+ hourly.

You may ultimately get more offers than doing an exclusive deal but you’ll lose a lot of that on fees.

Bankers also have significant motivation to exaggerate their own prowess and the valuation they think your company will bring. If they convince you that your $30m company is worth $40m, you’re much more likely to use their services and end up paying them thousands of dollars, even if a deal doesn’t happen. Always remember where their incentives lie.

Option 3: Use Quiddity

Quiddity connects you with buyers for free
Quiddity connects you with buyers for free

You want to sell your business on your terms but don’t want to pay an arm and a leg? You’re in luck.

At Quiddity, we’re building a platform to serve as the hub for your deal process, so you can effectively do it yourself, without wasting hundreds of thousands or millions of dollars on fees. You’ll be given all the tools and connections you need to run your process effectively, always with a real person there if you need it.

You’ve been leading your team through thick and thin for the past decade. When your biggest client has a problem, you fix it; when a key customer wants to renegotiate their contract, you call them. Why would you outsource the biggest deal of your life to a banker you don’t know?

We will be launching the platform in Q2 2018 so register at Goquiddity.com for updates and to be one of the first users to truly sell on your terms.

As always, please reach out with any questions. I’m happy to be as helpful as possible to any business owner, whether they are a customer or not.

Max

CEO, Quiddity

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