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Q&A: How to sell your business
Feb 10, 2017  |  Kenelm Tonkin


A business owner looking to cash out from Bloomington, Minnesota, asks:

I own a profitable company with $12 million in revenue. The business is growing and has a bright future, but I am now 63 and would like to retire. Despite being in business a long time, I’ve never sold one and am not really sure where to start. I’d be grateful for your thoughts.

Kenelm Tonkin, Chairman, Tonkin Corporation answers:

Start by asking, "Who should lead the sale process?" There are three mistakes frequently made by proprietors in this situation.

First, a founder should never conduct the transaction. Impartiality is required. Also, while entrepreneurs believe in themselves, there is nothing to suggest that people who run businesses know anything about selling them. Avoid this pitfall.

Second, a common error is to choose the wrong advisor. Business brokers and investment banks, who service small and large businesses respectively, are inappropriate here. A mid-sized enterprise requires a middle-market corporate advisor. While selling is the core skill of brokers, bankers and corporate advisors alike, when you engage such a person or firm you are buying their contacts, their rolodex of acquisitive companies and cashed-up investors. So, matching your company to the right advisor is vital. Look for one who has led sale transactions for businesses of the size and in the industry of your company and who is skilled in creating a market. Speak to referees about the advisor’s record in identifying buyers, creating competitive tension between them, handling objections, and negotiating transactions to finality. Accountants who prepare standard tax returns do not have this skill-set.

Third, once an appropriate advisor is found, negotiate terms that work for you. Typically, they require a retainer to cover costs regardless of whether your business is ultimately sold. This is understandable, but restrict the retainer to a monthly amount for a limited number of months, and have all of the advisor’s out-of-pocket expenses included in that retainer. Advisors will also require a success fee, usually defined as a percentage of the realized price. Dangle the carrot. Negotiate a lower percentage for a low sale price and a higher rate for a superior transaction price.