So, now that you have a sense of who your potential buyers might be, how do you go about reaching them? Assuming, of course, that you're not going to be selling to people you've already identified, like your children or your key employees.
You could start by advertising your company yourself, in the "Business Opportunities" section of your local paper, strong regional papers, and/or the Wall Street Journal or New York Times. You could also start sending out feelers to your friends, associates, and network of business contacts to see whether they or anyone they know might be interested in buying your business.
However, we don't recommend either of these tactics. If your employees, customers, and suppliers find out that the business is up for sale, you could have big trouble on your hands. Key employees might start jumping ship, and other employees might stop putting forth much effort if they see you as a lame-duck boss. Customers might search for other sources, and suppliers might search for other customers. Many people assume that when a company goes on the block, the primary reason is that it's on shaky financial ground, so you may find that credit is not being extended to you or people don't want to sign long-term contracts with you. Avoid all these problems. Keep your divestiture plans to yourself and your team of advisors as long as possible.
A better course of action is to let your business broker or mergers and acquisitions intermediary look for potential buyers for you. They should have a long list of contacts, including brokers in other areas of the country, to sift through in search of the perfect match. They may also advertise your business in local and national publications, trade journals, etc. under their name, not yours. Your broker should be able to approach potential buyers confidentially, keeping your name out of the discussion, until some positive interest is shown. The broker should also screen the potential buyers to weed out those who are merely nosy, and those with no visible means of coming up with the purchase price.
Prepare a selling memorandum. One of the best tools to promote the sale of your business is a selling memorandum. This is essentially a business plan in reverse. It should present all the important information about your company, products, industry, and market in an easy-to-grasp format that presents your company in a very positive light. The elements of a selling memorandum are very similar to what you'd find in a business plan that was prepared for a venture capitalist or a banker.
You'll need to start with an executive summary that briefly lays out your key selling points, and tells the buyer why you want to sell. The buyer will always want to know why you are selling, so have some plausible explanation ready that casts your business in a good light!
You'll also need sections that describe
- the facts about your company's history, structure, and operations;
- the asking price and basic terms you're looking for;
- your industry, market, and products;
- your employees and physical assets;
- historical and projected financial statements; and
- any other information that will explain who you are and why your business is such a strong opportunity.
Keep in mind who your audience is, and don't divulge any information that you wouldn't want your competitors to see. On the other hand, remember that a lot of your financial information is publicly available anyway, so there's no need to be paranoid.
Your selling memorandum is essentially a marketing piece, and it's likely that your business broker will want to have a hand in creating it. In addition, you should run it past your lawyer and accountant (in fact, it's likely that your accountant will provide the financial information you include). In most cases, this memorandum is not considered a prospectus that would need to comply with SEC or state securities regulations. Nevertheless, it's important to make sure that your statements are accurate and not misleading or incomplete, and that your projections and written expectations for the business are reasonable.
In particular, if problems exist, don't try to cover them up. The buyer will find out eventually, and will probably distrust everything you say after that. In the worst-case scenario, you could be sued for fraud. Instead, where problems exist, briefly state the problem and then present one or more possible solutions. For example, if your revenues have been falling off, but you think a new advertising campaign will drive up sales, make sure that the two ideas are linked in your memorandum.
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Warning
Do not show your selling memorandum to anyone who hasn't signed a confidentiality agreement, often referred to as a "nondisclosure agreement," or "NDA" for short. That includes your accountant, business broker, and other professionals (your lawyer will already be bound by professional responsibility requirements so a formal confidentiality agreement isn't necessary).
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