TRICKS OF THE TRADE: GETTING A PREMIUM PRICE FOR YOUR COMPANY, PART THREE
This post is part of a four-part series exploring the process of selling a small business. Be sure to also check out Parts One and Two.
Make a Commitment to Sell Before Negotiating
If you think you would like to sell your business or you receive an unsolicited offer for your company, make the commitment to sell before you enter into any further discussions.
Rather than create real competition, sellers oftentimes try to bargain using the status quo (i.e. “I’ll just keep my company”). The status quo strategy is a huge value killer. In most deals, the buyers will spend upwards of $100,000 just to review the transaction, perform some preliminary due diligence and make an offer; they’ll spend over $1,000,000 to close the transaction. If there is any risk of the seller “taking his ball and going home,” the best and most qualified buyers will not spend the money leaving only half-baked offers from low ball bidders.
This strategy tends to permanently taint the seller’s company with the best buyers thus hurting the company’s value in the long run.
Closely related to the status quo approach is the “everything is for sale for a price” strategy. This is really a non-committal strategy that has all the same issues of the status quo. Will sellers still get offers if they employ this strategy? Of course. But expect potential buyers in this scenario to be unfunded sponsors who’ll tie up the company while they search for funds to close that “everything is for sale” offer they made you.
Therefore, make the commitment to sell before you enter into any negotiating.