By now it should be clear that selling a business is not a one-man job. You’ll need to ask your advisors for reputable, proven professionals in order to find the right team to sell your business. Let’s take a closer look at three of the major players you’ll need on this team.
A business valuation can be completed by a variety of people you can find in accounting firms, valuation firms, business brokerages, etc. Talk to your accountant and he/she will be able to refer you to a reputable person.
While you can estimate the value of your business using standard rules of thumb, you want more than this when you’re trying to sell. Someone licensed to valuate businesses will look at your finances, how much cash you have on hand, your margins, customer concentration issues—they are going to take a deep dive into your business and use a few different methods to calculate the value of your business.
Getting a professional involved will make sure you haven’t missed anything, have accurate expectations and aren’t selling for less than your business is worth. If your estimate is different than the final figure of a professional valuation, find out why and look into it.
Expect a valuation to run between $10,000 and $15,000.
The Wealth Manager
Once you have your business valuation completed, sit down with your wealth manager to determine whether this amount is enough for you. They will help you consider the fees and taxes that will be involved in selling in order to determine how much will be left once you’ve sold. If it’s not enough, you can focus on growing the business until it’s worth an acceptable amount.
A wealth manager typically works as an advisor for no additional charge. However, their hope is to end up managing the proceeds of the sale.
Your accountant is key when you’re selling your business. In addition to being an excellent source for referrals, he or she will provide clarifications or work to prove the accuracy of your inventory.
Expect to spend $5,000-$15,000 for your accountant’s role.
Selling a business means a mountain of legal paperwork, so your attorney will prepare your legal contracts.
Be prepared to spend between $60,000 and $80,000 on your lawyer.
The Investment Banker/Business Broker
A banker generally works on selling larger business and a broker generally smaller. Banker or broker, this person is going to be the driver of your sale, handling the business of selling your company so you can focus on running it. They will complete due diligence on your organization, market your business and find sellers. They are also going to be a wealth of information. Keep in mind that while they will know, for example, how to build your business, they are not going to help you do it. Their focus is the sale.
You’ll pay your investment banker or broker a commission. Commissions vary on a deal by deal basis, but there are some common structures. The Lehman Formula appeared decades ago as a commission structure that pays your banker/broker 5 percent of the first million of the transaction price, 4 percent on the next million, 3 percent on the next and so on. This basic formula is still popular but has taken on a number of variations, including the double Lehman Formula, which is more common in transactions involving smaller companies. In the double version, your banker/broker takes 10 percent of the first million, 8 percent of the next, then 6, 4 and 2.
On a $5 million business sale, you can expect to pay commissions of about 6 percent, or $300,000.
Who's right for your team?