HOW TO BE PREPARED TO SELL YOUR BUSINESS to A COMPETITOR OR STAFF MEMBER
Setting up a three to five year exit plan to ensure you sell your business at maximum value and in a timeframe that suits you is an excellent idea.
And while it requires a commitment of time, energy & money, it undoubtedly improves the final sale outcome.
However, for an increasing number of business owners, there is another way they sell. It’s called Exit by Acquisition (“EbA”).
EbA is basically when you get an email or phone call out-of-the-blue from a competitor, an investment firm (eg Private Equity), a larger company in a related profession or industry, a senior staff member (or the senior management team), and/or an aspiring business owner or entrepreneur.
Business owners can expect the;
- Number direct approaches from potential buyers to increase, and
- Probability of selling this way to skyrocket
Whether actively thinking of selling or not, it would be smart to engage with and ‘harvest’ all enquiries from legitimate potential buyers.
The key is to quickly determine their legitimacy (including their timetable, strategic objectives, buying process and so on) and to understand how to best control the potential negotiation process and future discussions that will unfold.
Note: When dealing with a competitor or staff member there are additional complexities that need to be considered but aren’t addressed here.
From my experience I know ‘negotiations’ will take up a lot of time (the crafty buyers like it this way!) and evoke both a lot of excitement and stress which can distract you from your business and increase personal anxiety.
Below I provide some tips to guide these critical early acquisition discussions, including;
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an outline of what you should & shouldn’t say and do, and,
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how exactly to determine the bona fides of one of these potential buyers who call out of the blue.
With or without an Exit Plan, one of these surprise calls from a competitor or team member might be the best opportunity you’ll ever get to sell, so the stakes are very high.
The temptation can be to ‘let it slide’ because – and these are very common and instinctive thoughts – you think;
- The timing isn’t ideal but might be in 6 months or so,
- The business has some real growth potential in coming months,
- Before I start any discussions, there’re a few things I’d like to fix in the next few weeks, or months, to make it more attractive for a buyer.
But, with the right advice early, none of these will get in the way of negotiating a good deal with the right buyer. What’s important is you keep the discussions flowing.
If you respond slowly or not at all, or try to ‘play games’, you may well lose the opportunity all together.
Where you think there is legitimate buyer and a real potential to sell, you have an important decision to make about what advice you need.
Handling it yourself can be tempting, but keep in mind it’s usually new territory and will be a big distraction from running the business.
Calling a traditional business broker might seem logical, but as they operate on a ‘success fee’ basis, their incentive is to get a deal – any deal – done quickly. This is absolutely not the way to handle an unexpected call out-of-the-blue from a competitor or any other potential buyer.
I've written before about the shortcomings of traditional business broking when it comes to selling a business.
The process of setting your business for sale, then advertising and dealing with potential buyers and staff who get wind of the potential sale is incredibly challenging.
It’s invasive. It’s long-winded (no time guarantees here). It’s stressful. And, yes, it’s hard.
If you want to avoid that pain, here’s the key things you need to know to help you capitalise on a call you get ‘out-of-the-blue’.
Regardless of how you decide to deal with the potential buyer here are my tips.
TIPS ON HOW TO DEAL WITH A SUPRISE OFFER TO BUY YOUR BUSINESS. [HEADER]
Tip #1 - Leave the right first impressioN.
In that first call from any potential buyer you want to leave them with a few key impressions.
- You’re not surprised by the call.
Show them you have a ‘good’ business that works for you and will for them. Of course you’re expecting their interest. - You have thought about your own exit plan.
Until you’re clear on who they are and what they have in mind, you shouldn’t, and aren’t obligated to, go into any detail about your plans. (If you haven’t yet considered your exit plan, or are unsure, you can always call me.) - Now is not the time
While you may be open to discussing a potential sale, ask them to come back in writing and propose how they propose to move forward with formal discussions. It doesn’t have to be ‘war & peace’, but you should expect some structure and formality. If they just want to chat on the phone or drop in for a chat sometime be very wary. If the caller is a genuine and experienced buyer they will respect this approach and agree to playing by your rules. The ‘chatters’ will move on and you’ll save wasted time and energy.
Tip #2 - Be very economical with what you say.
During the early stages of a discussion like this you do not need to divulge any specific details like;
- Key customers and suppliers
- Key staff
- What you would sell for
- Your own ideal exit plan.
The objective, at this early stage, is simply to create some time and space for you to think this through, ideally with the right specialist adviser, and to sound confident and credible so the prospective buyer won’t take you for an easy target.
And, definitely don’t say things like:
- I’ve been thinking about selling but just haven’t got around to doing anything about it.
- I’m really over this business and am so glad you called.
- I’ve just had a health issue, or break-up with my business partner, or issues with a key staff member and am not sure if I can continue to effectively run the business.
Tip #3 – Jealously protect your sensitive business information.
After initial pleasantries, potential buyers will want to quickly get down to business. They’ll nicely ask you for a long list of commercially sensitive business and financial information to help them with their initial evaluation.
In some cases they might even offer to sign a Non Disclosure Agreement (NDA) to give you comfort about dealing with them and sharing commercially sensitive or private information.
This may get you excited and relieved, as it may appear like you wouldn’t need todo all the work of getting ready for a formal sale process.
But before you get too far ahead of yourself and start sharing sensitive information, even with a signed NDA, you need to quickly work out if the buyer is legitimate. And offering to sign an NDA in exchange for you handing over a pile of confidential information isn’t even close! (Read more on this in my follow up article Is your unexpected business buyer legitimate?)