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Blog Post
May 6, 2022
Seven Reasons to Use An M&A Advisor To Sell A Business
by Joe Oddo
Based on many testimonials, the decision to engage a professional to sell your business will be one of the most important investments you can make. Sellers tell us how emotional the process can become. After all, business ownership has been your life’s work.
The entire process from preparation to execution becomes much less stressful with the proper M&A advisory team carefully guiding you through the multiple steps. For many business owners, the sale of a business will result in making up to 70% of an owners total net equity available.
The most common challenge in selling your business is ensuring that it is performing at its peak when the process of selling is initiated. As M&A advisors, our objective is to minimize the time that you need to worry about the selling side – in order to stay focused on generating cash flow. The other two important services you will need are a reliable transaction attorney to expedite the deal closing, and a good tax specialist to keep Uncle Sam from taking too large a chunk of the transaction.
Owners we interview say they could not have run the business at full capacity without us confidentially coordinating the selling process. It would be impossible to tend to the details needed in marketing a business, qualifying prospective buyers, walking through due diligence, negotiating the terms, and possibly even helping the buyer achieve financing. Below are seven reasons that highlight the value of trusting your M&A advisor as the conduit to a successful sale.
Firstly, before you decide to sell your business, certain key information must be discovered. That is why we take the steps to build a relationship with our clients and begin a dialogue using a business information organizer (BIO) questionnaire, a financial recasting, and the certified valuation to learn all the pertinent information to properly represent the business.
For instance, even if you are attempting a simple transaction such as selling your half of the business to a partner, there are multiple steps needed to ensure that the true Fair Market Value (FMV) is agreed upon. If you base your assumption of the value on the financial documents alone, then you are likely to come up far short of the true competitive value.
Using a professional to identify the Seller Discretionary Cash Flow (SDCF) finds the true value hidden in the numbers. These are the owner perks and benefits that need to be accounted for in the form of add backs during a financial recasting. For every dollar found, you could see as much as three to four dollars back in the final sale receipts.
Commissioning a Certified Business Valuation from your M&A Advisor is a smart first step which can be done long before you are ready to sell. This gives you a baseline on the Fair Market Value of your business as an ongoing concern. Once you confidently know what your business might bring on the open market, you can start deciding on a timetable, figuring out the tax implications, or updating your business plan for enhancing the appeal to prospective investors. Plus, having the business valuation in hand will allow the purchasing party to ultimately secure financing, in essence accelerating the transfer process.
Second, preserving the confidentiality of the transaction should never be compromised, otherwise it will be putting the whole transaction at risk by causing uncertainty to employees, vendors, the bank, the landlord, but most importantly to your customers. People don’t like change, and selling a business that has any aspect of confidentiality breached could threaten the entire deal or provide unnecessary leverage to the buyer. A good M&A Advisor knows how to preserve confidentiality.
Third, business owners are free to do what they do best, run the business at full capacity while off-sourcing the key components that bring a deal together. Once the FMV is established and the owner decides to engage, a professional team kicks in to complete the marketing. Since investors demand concise, convincing information to explore an acquisition, they can rely on a carefully prepared Confidential Memorandum that incorporates the BIO data to describe the business details, the competitive advantages, the growth potential, the general picture of the market and the prospective deal structure.
Fourth, a well-established M&A team like ours will generate quality marketing materials and spread them confidentially through multiple channels to get the word out about this great investment opportunity. The reality is that most businesses change hands with people that you do not know and are not even in your specific industry, thus they need good marketing documents, developed by a qualified M&A firm.
Here again your M&A advisor is able to tap into the years of previous connections with a confidential email campaign, non-divulging approach letters, and informal calls to alert his network of investors. Utilizing these web channels may yield prospective buyers from parallel trades. For instance, a search firm specializing in the healthcare field may also find higher education or non-profit placements a good vertical to add to grow their business.
Fifth, speaking for our organization, we only work with experienced, financially pre-qualified buyers and private equity investors with a strong cash position who are motivated to move forward. Generally, these investors act quickly and decisively, and don’t waste time.
We thoroughly pre-qualify prospects who must disclose both their management capabilities and a strong financial capacity, with proof of liquid funds that would make a deal possible. Having capable and qualified introductions screened to provide the most likely matching profiles from the investment pool really minimizes the owner’s time and allows for running an efficient, saleable enterprise.
Sixth, imagine yourself trying to run the business when a number of prospective buyers start asking for due diligence, offering Letters of Intent (LOI), want to start negotiating, or ask to talk to key employees. Relying on your M&A advisor to address these tasks frees you up to focus on the day-to-day business operations.
One example of how we help is steering the prospective buyer to draft an Offer to Purchase (OTP) rather than an LOI. If asked to take the business off the market, you want a stronger agreement that has proper terms and consideration in the form of escrow funds deposited, due diligence timelines defined, benchmarks established for clearing financial hurdles, and ensuring the proper Definitive Agreements.
Seventh, it is well-established that even elite athletes need coaches. As a business owner, you too should have a coach to depersonalize the negotiating process and have you well prepared to answer buyers’ questions. Chances are that the investors have negotiated many deals and know to look for weak spots and how to gain advantage in the negotiation.
In sum, with your M&A advisor as a business intermediary, you will be in complete control of the deal without having to worry about the intricate details. You’ll have peace of mind that the transaction is being conducted professionally, and that all the pieces are being coordinated, especially meeting the timelines and coordinating the external activities of the transaction attorney, banks, landlords, and tax professionals.
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A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 703-338-0200 or j.oddo@neumannassociates.com