The business of selling businesses

By Katie Mills Giorgio, correspondent

Emotions can run high when trying to sell a business.

“I've built a business and sold a business that was my baby,” Maurie Cashman recalled.

“I know what it feels like to leave. It's tough for clients to realize there's life outside of that business.

“Sellers will always get ‘seller's remorse,' so I help manage emotions, let them know I understand and remind them of our objective.”

Cashman, now president of Aspen Grove Investments in Cedar Rapids, which he started in 2007, focuses on exit planning and working with his clients for a number of years before ever listing the company for sale.

“When you hire me, you are hiring a business partner,” he said. “My interests are directly tied to your interests, and I get paid based on the success of the deal.”

When working with someone trying to sell their business, a business broker will first determine the market value of the business to be sold. A marketing proposal or informational package is developed describing the business.

Then the broker will begin to market to prospective buyers. He or she also will assist in evaluation of offers and negotiating terms of the transaction all the way through closing.

While the process may seem straight forward, selling a business is not a quick endeavor. According to the most recent national survey of all business brokers, said Brian Brown, president and co-owner of the Iowa franchise of Murphy Business & Financial in Cedar Rapids, the average length of time from listing to sale is about nine months.

“The process takes time,” he said. “Not many small business owners have the extra time it takes to sell a business on their own.”

Jon Konchar, vice president at FNBC Iowa, which was established in 2001 and is based in Hiawatha, agreed.

“Owners who try on their own often see a negative impact on their business performance,” he said. “We help them focus on running their business until we get the offer ...,” Konchar said.

“Buying or selling a business is probably a once in a lifetime transaction. Most people need that calm, professional approach and management of the process from start to finish.”

Brown started his company in 2008 to focus on selling and buying businesses, as well as purchasing franchises, business succession, mergers and acquisitions and valuations.

“Business owners have various skills and expertise but may not be knowledgeable about the buying and selling process,” he noted. “An intermediary will provide strategic information regarding market timing, market conditions, market price, financing options, structuring the transaction and other information that is advantageous to the owner.”

Konchar added that one of the most important roles of a business broker is maintaining confidentiality related to the sale.

“It's difficult to find a pool of buyers on your own and keep it quiet,” he said.

Brown agreed: “An owner could experience disastrous results by leaking that the business is for sale. Employee, customer, supplier and competitor relationships could be damaged …. A broker will preserve the confidentiality of the parties during the process and only share information on a need-to-know basis.”

Business brokers also play important roles as negotiators in the buying or selling process.

“An intermediary will act on behalf of the parties establishing a strong negotiating position, without compromising the goodwill and relationship between the principal parties,” Brown said.

Business brokers can work with a spectrum of business clients.

“We have represented every type of business in Eastern Iowa and several outside the Midwest, from a large multinational entertainment company to local manufacturing companies and coffee shops,” said Konchar of FNBC Iowa.

His business values range from $25,000 to $50,000 up to $14 to $15 million.

At Aspen Grove Investment, the majority of clients are family-owned businesses that range from $70,000 to $10 million to $12 million. Murphy Business & Financials tends to work on average with clients in the $600,000 to $800,000 range.

All three brokers say economic hardships have affected the industry over the least few years.

“Before the (2008) flood and the market took a nose dive (in 2008), we would sell 75 percent in the first six months,” Konchar said. “Since we've had our big adjustment, you add two to three months' time.

“Probably 50 to 75 percent sell now in the first 12 months.”

Cashman said one of the biggest economic factors was the affect on business valuation: “People think their business is worth what it was before the crash.”

His sales vary with the economy, with a “quick” sale being in the nine-month range for the last few years. Nine to 18 months can be expected on average, while larger businesses can take up to four of five years.

“That requires a really strong relationship,” Cashman said. “It's really like making me a part of your management team.”

However, Brown added, “While demand was weak and acquisitions were difficult to finance in 2009 and much of 2010, interest in buying small businesses and franchises has been very strong the past nine months.”