Like most business owners, John gets a call every week or so from someone who wants to buy his business.  Most of them he ignores—it’s either a broker or someone he's never heard of.  Besides, he doesn't feel comfortable expressing an interest.  The caller could be a competitor fishing for information to use against him.  Eventually though, John will get a call that piques his interest.  It might be a big player in the industry—either a direct competitor or someone in the industry who wants to be in John's market.  Or it might be a consolidator—someone buying up a bunch of companies in hopes of becoming the industry’s 600-pound gorilla. 

You might think that John would be ready if opportunity knocks.  But few business owners plan the sale of their companies in much detail until they start talking to a prospective buyer.  My guess is that buyers initiate over half of all business sales.  In many cases, owners simply respond to the buyers rather than actively selling their businesses. 

An owner who is approached by a good buyer will often agree to meet, assuring himself that there can't be any harm with a meeting because his business is not for sale.  "I'm just going to listen," he tells himself.  The business might not be officially “for sale” but if there is any possibility of selling to this buyer, the business really is "for sale."  And if there is no chance of selling, what’s the point of meeting? 

Certainly it would be nice to know what someone thinks the business is worth.  But the buyer won’t be able to tell you what it is worth or whether he wants to buy it without seeing financial statements and examining the business in detail.  And the owner won’t know the difference between a good offer and a bad offer unless he’s done his homework.

Owners seem to forget everything they know about selling and negotiating when it comes to selling their businesses.  They simply respond to the buyer’s questions, without any thought given to proactively presenting the business to the buyer.  Owners say that they can shift into selling mode once they are satisfied that the buyer is qualified and likable, but a good buyer might get away if the owner seems unsure of what he wants.  An owner is just rolling the dice if he has only a vague notion of what the business is worth, what he needs, and whether he is ready for this life-changing event. 

Frequently the owner doesn’t realize what the buyer needs to know to make an intelligent decision.  For example, a buyer may ask for financial statements, but what he really wants to know is how profitable the business is.  Usually, the buyer has to be alerted to discretionary and nonrecurring expenses that make the business look less profitable than it really is.  Every explanation should be in writing because buyers often pass on written information to outside advisors who help value the business and put together an offer.

Business owners who begin discussions with an interested buyer sometimes fail to consider how their bargaining position will change over time.  At the outset, the business owner has maximum leverage because he can very easily decline to sell if an early offer is not attractive.  As the owner spends more time in the process and comes to embraces the idea of being free from the business, he becomes emotionally invested in the outcome.  If the buyer then negotiates for changes, the unprepared seller might be too eager to make concessions because he fears he might lose a sure thing if he takes time to shop the deal. 

The solution, of course, is to treat the sale of a business like any other sale.  You must know what you are selling and be able to convey that to they buyer.  And you need alternatives because it is negotiating leverage that gets you your best deal.  You don’t want to look back and regret the deal you made.  Some tips on selling your business when it is not for sale:

1. Get noticed.  Improve your PR, get active in trade groups and become known in your industry so that big players in your industry will either come looking for you or recognize your name when you approach them.
   
2. When the call comes.  Get an outsider’s perspective on value and other issues before you start to talk with a prospective buyer.  If there is mutual interest when you first talk, enlist a third party to negotiate the deal.
   
3. Play from the center of the board.  In chess you maximize the power of certain pieces by positioning them in the center of the board.  Before you negotiate, make sure you are properly positioned by having other buyers or alternatives to selling.
   
4. Limited search error.  Always be aware of the human tendency to settle for the first acceptable option rather than to search for the optimal solution.
   
5. The forest first, trees later.  Get an understanding on price and important terms before you get drawn into due diligence or minor details.

You might like the idea of a buyer approaching you before you’ve offered your business for sale.  But don’t think you won’t have to do any selling.  The deal you ultimately get will reflect how well you negotiate and sell.

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