Part 1: Understanding the Process and Mastering Negotiations

Even the most well informed business owners run into challenges when selling their company making the initial decision process critical. When selling a business, there are two options: manage the process yourself, or enlist the help of an intermediary. Using an intermediary has many benefits. They can help you secure an offer that is not just satisfactory, but yields the best value and provides maximum fit for the future of your company.

Read on to learn the benefits of using an intermediary with the easy to remember acronym SUCCESS.

Strategic Fit

When considering acquisition or merger activity, it is important to ensure synergy between the purchasing entity and the seller. For example, the owner of a technology firm decided to sell her business and hired an intermediary. After the first round of marketing, two potential buyers expressed interest, and made an offer within 10% of the initial asking price. , Buyers were not a strategic fit for the company even though their offers appeared financially appealing.

After additional marketing efforts, the intermediary identified a buyer with complimentary products who made an offer twice the value of the previous offer.

Finding a buyer who is a strategic fit for your company often yields the best results. Consider the following four areas of synergy:

Product synergy occurs when the purchaser and seller have complementary products. When combined, these products can create a greater value for consumers.

Distribution synergy happens when the purchaser has products that they can distribute through the seller’s customer base.

Geographic synergy takes place when a purchaser needs a new location that is geographically desirable to grow or sustain business they are seeking geographic synergy.

Management synergy occurs when a company has management needs that are met by purchasing a new company.

Understand the Process

Understanding the selling process is an essential component to a successful transaction. Without experience selling a business, it is very difficult to understand all aspects of the sales transaction. Intermediaries handle business transactions daily allowing them to develop a deep understanding of the process.

Here’s a quick breakdown of the intermediary process:

Step 1: Initial Meeting

Step 2: Financial Review of Company

Step 3: Finalization of Engagement Agreement

Step 4: Pre-Sales Planning

Step 5: Marketing

Step 6: Negotiation

Step 7: Finalizing the Deal

Step 8: Closing

Intermediaries conduct the first two steps to evaluate the profitability and success of the potential transaction. Then, the intermediary will partner with the seller to finalize the engagement agreement. After they finalize details, marketing efforts are launched. This process alone requires a tremendous amount of time and effort. When using an intermediary, marketing efforts are maximized with access to additional resources including: industry contacts, deal databases and marketing outreach strategies.

Once the marketing efforts yield potential buyers, the negotiation process begins. Negotiation demands a deep understanding of each party’s goals and objectives. Although there isn’t a magic formula to this area, a process is followed to produce the best possible results.

Closing the deal can be the most difficult and time consuming task in the process. Even in the best circumstances, this process can get complicated. Many business owners don’t have the time to manage all of the details to get the deal closed.

Create Multiple Options

Business owners often fall into the pitfall of dealing with one offer at a time. This can limit the company’s opportunity to secure a successful deal. For example, a potential buyer may contact a company expressing their interest in a purchase. While waiting for an offer to materialize, the seller does nothing to market their business. And when the seller finally does receive an offer, the owner has no idea if he is receiving a strong value because there aren’t any other offers on the table.

This situation illustrates the need to invest time in managing marketing outreach. It creates more interest in your deal, and can help secure an offer with a stronger value.

Communication and Negotiation

This step is a common obstacle for many business owners. Even when a business owner perceives himself or herself as an excellent negotiator, they forget about everything else that goes into securing a strong deal.

For example, some business owners solely focus on price in negotiations. The owner may get his price, without realizing the purchase structure of the deal heavily favors the buyer. There are also communication pitfalls that occur when a purchaser or seller unintentionally insults the other, creating a turbulent negotiation process.

Fortunately, a professional intermediary can stay neutral—keeping all personal feelings out of the process and negotiating a strong deal. In addition, they can help you avoid common pitfalls such as disclosing your asking price too soon. This is something many business owners do which eliminates the chance of securing a value beyond their desire.

In this article, you have learned how an intermediary can help with identifying a strategic fit, understanding the process, creating multiple options, communication and negations. In part two of this article entitled “Managing Expectations and Gaining Momentum,” you will learn the final three components of the acronym SUCCESS.

Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of Driving Business Value in an Uncertain Economy (Decere Publishing, 2009), Enhancing Your Business Value...The Climb to the Top (Decere Publishing, 2002), Selling Your Business The Hard Easy Way (Decere Publishing, 2008) and co-author of The Business Sale...A Business Owner's Most Perilous Expedition (Decere Publishing, 2001). He is also the author of numerous articles on mergers and acquisitions.  For more information, contact him at (770) 399-9512 or go to http://www.vercoradvisor.com.