Wouldn’t it be a lot easier if we could buy and sell companies online? Owners could avoid a lot of trouble and fees as well as get deals done quicker. Imagine going to a 55-year high school anniversary and finally deciding to retire. The next day, simply put your business up for sale on eBay, collect the cash a few days later, and never worry about leaky copper tanks again. Unfortunately, it’s not that easy. Here are seven reasons why a business cannot be sold online and how owners can make the sale process go more smoothly.
1. Businesses Are Complex
A business is more complex than a Beanie Baby collection or a pair of shoes. Even a small business is vastly more complex than any product you find online. They are hard to understand and hard to explain correctly. Owners tend to overstate their value, and buyers tend to tear them down. Buyers’ eyes start to glaze over if the owner has a 15-minute, no-break answer to “How’s business?” Try to understand your business well enough to break it down into a simple explanation, including what is special about the business.
2. People Are Complex
The value of a business is usually mostly in the people, and people are more complex than a used flat-screen TV. Both buyers and sellers have agendas, as do management and the employees. Most people involved in deals seem to make the deals more complex than they need to be: we can’t help it. At some point, both sides need to make it easy to get a deal done.
3. People Embellish (Lie)
People lie all the time, whether it’s a white lie, an embellishment, or an out-and-out fraud. We at least tend to push the envelope on the truth, but if we overdo it, the other side will lose trust. If it happens on eBay, the seller’s rating will go down, but in the real world, a buyer will walk away. Stick to the truth, and while a seller can emphasize the positive aspects of the deal, you have to be careful not to overdo it.
Culture is a very important aspect of a business, but it is often ignored. The value of a business can be in the culture, or the culture could be a toxic negative. It is very hard for owners to understand and explain their culture, and they might be wrong about it. Buyers often say that they do not want to change anything, but then they change everything after an acquisition. Take the time to understand the crucial aspects of your company’s culture and break it down into 5–10 important items.
5. Multi-step Deals
Acquiring a business takes a lot of steps, no matter how simple the business is. Each step gives both sides the chance to rethink the deal or find better options. If you’re buying a gift card for your nephew, you might waffle a little before settling for an Applebee’s card. Business buyers tend to consult with a variety of advisors, and there could be over 100 interactions between buyer and seller before a deal is completed. It is important to keep communicating, stick to a schedule, and resolve issues quickly to keep a deal going.
The sale of a business takes time, so things change during the process. The overall economy can change, competitors may change, customers change, people leave, and buyers themselves get acquired. If we could freeze a business in time, that would make things easier. The best way to deal with change is to expect change, and if something comes up, disclose it quickly and fairly to the other party.
7. Lack of Preparation
Owners are often woefully unprepared to sell their business, both personally and professionally. Even if you could list the business online, many owners would take it down afterward because they would realize that they do not know what to do in retirement. If the perfect buyer walked in the front door with a suitcase full of cash, almost no owners would be prepared to disclose the data needed to give the buyer enough comfort to go through with the deal.
How to Make It Easier
Although the sale of a business will never be as easy as selling used gym equipment, there are a number of ways to make it easier. First, the owner needs to be prepared mentally and have their personal finances and planning in order. The owner should also talk with their advisors in the legal, accounting, and M&A fields to get the business ready. Try to find the skeletons and fix them if possible, and be sure to understand the valuations in the market.
Owners should also talk with key stakeholders, such as partners (spouses/kids) and key employees, to make sure everyone is on the same page. The sale will never be as easy as getting rid of your Aunt Betty’s antique silver set, but through proper personal and business preparation, you can help to make the process smoother.
Tom Kastner is the president of GP Ventures, an M&A advisory services firm focused on the tech and electronics industries. He is a registered representative of StillPoint Capital, LLC—a Tampa, Florida member of FINRA and SIPC—and securities transactions are conducted through it. StillPoint Capital is not affiliated with GP Ventures.