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By: Theodore P. Burbank Buying or selling a business is not easy. Essentially all Business Buyers, Business Owners and Business Brokers do not get a passing grade. In fact, results are poor to horrendous across the board. The question was why and how could results be improved? It took a combination of events and more than a year for us to find the answer but find the answer we did :-) First - What are the odds of success? The success rate by those attempting the sale § Real estate brokers selling businesses * 5% § Business brokers * 14% to 25% * Business Brokerage Press survey § Intermediaries and Investment bankers 90+% If large companies can be
sold ninety plus percent of the time why couldn’t small and mid-size
businesses enjoy similar success? It
took a long time and a lot of experimentation but we finally developed a system
where 90+ percent of all businesses using our straight forward, easy to follow Business
Selling System, sold! Don't most small businesses
eventually sell?
Do most people attempting to buy a business find one to buy and how do they find it? Success rates improved when experience brokers were involved to one sale for every twenty buyers. Intermediaries, dealing with individuals as buyers rather than corporate or strategic acquirers, usually place one of six buyers into a business. The ratio of individual buyers to sale could be as high as one of two, if in the hands of an exceptional intermediary. Buyers who engage a professional to conduct a a pro active acquisition campaign on their behalf are successful ninety plus percent of the time (based upon our experience). A summary of the success of buyers by options available: Success
Rate Buyers on their own estimate 2% With a rookie broker
2% Experience broker 5% Intermediary 17% Exceptional intermediaries
50% Professional pro-active campaign 90+% The fact that essentially all large private businesses sell gave us confidence we could improve our rate of success with small and mid-size businesses. It took us over a year to develop an improved process and even longer to refine it but we were successful and eventually would sell essentially every business "listed." We also refined a process that allowed business buyers to enjoy a similar rate of success in finding and buying a business that was right for them. An overview of where we started from and how we got to, dare I say, "doing it right" is summarized below. Lesson learned § Business owners and buyers do not understand how to buy or sell a business and we had to show them how § Rate of success increased in direct proportion to the preparation and guidance we provided both buyer and seller § Successful brokers/intermediaries are educators first and salespeople second § Buying a business does not follow the usual buying/selling protocol §
The process of Buying/selling a business is unique yet straight
forward Action taken Sell side: What we did was essentially adapt the successful methods employed when selling a large company to be appropriate for selling small and mid-size businesses. The result was that the selling process was broken down into two steps instead of the usual one. No longer would we take a listing and then right away begin the selling process. First Step – purely
advisory, with no “Listing Contract” involved.
Business owner could decide not to sell, postpone sale, sell on their
own, proceed with a sale or close down. They
were free to decide whatever they decided was in their best interest based upon
solid information. A “Pre Sale Rw” is performed as part of the first step so as to identify:
Our report was designed as an
educational tool and therefore included more than just numbers.
The report writer and valuation software included with our products for
Business Owners and Brokers produces this same report. Second Step
– The Good News! The SECRETS to our success are revealed and explained in the books and software we developed especially for Business Owners and Business Brokers.
The buy side process was
divided into two steps also. Step One - Buyer Profile
and Business Identification There is something wrong with
essentially every business and we realized that matching our customer’s skills
etc the needs of our client companies would be the best way to produce
a win-win for them and a commission for us.
The buyer would recognize that “All the right things are wrong” and
our seller would be confident in the buyer’s ability to take their business to
the next level and therefore more comfortable providing some financing. The next portion of this first
step was to understand what information and knowledge our customer required and
then to provide the information or education before it was needed. Second Step – Locate,
analyze, value, finance and buy the business. When the right business
appears to be found the ‘due diligence”, valuation, structuring, arranging
for financing and the rest is relatively straight forward because the process is
approached in the proper sequence. Before we developed the two step process for buying a business we would interview twenty business buyers for every business sold for a success rate of five percent! The two step approach increased our success rate dramatically. My top associates consistently were able to place one of two buyers into a business while the office's overall success rate rose five fold. Good
News for Business Buyers The Business
Buyer’s Tool Kit is actually a replication of the ‘buyer
education” and workbook used by my associates in helping business opportunity
seekers identify and purchase their ideal business. For those who want to further increase their chances of success in acquiring a business, the option exists to engage a professional to conduct a pro-active business acquisition search for you. Lighthouse Financial, LLC offers this service on a limited basis and this option might be something for you to consider. I sold my brokerage practice in December of 2002 and subsequently have spent my energies developing tools for business brokers, owners and buyers. My objective is to memorialize the efforts of my associates and staff and help all, buyers, sellers and brokers, become more successful when buying or selling a private company. |
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