Offering up your small business for sale is no easy feat. And selling a business to a competitor can easily imbue this feat with even more logistical and emotional complications. Luckily, there are many experts out there that have helped many business owners in selling a business to a competitor. Even more, there are business veterans who have gone through the process of selling their own businesses in the past.
1. Get an Idea of Your Business’s Value
If you are serious about selling, have your business appraised. When you make the first move to sell your business, you should be prepared to offer a selling price. An appraisal will help you set that price based on market facts, rather than gut feeling.
2. Always Proceed With Caution
When selling a business to a competitor, heed the following caution:
As soon as a competitor, or the employee of a competitor, indicates interest in a business purchase, proceed with caution. Those within the same business or industry sector may be using the premise of a business purchase primarily to learn more about the inner workings of the business. Don’t divulge information too quickly.
Realize that inquiries from those who currently own or work for a competitor may or may not be serious prospects. Separate the serious from the curious by requiring a mutual confidentiality agreement followed by an information exchange that requires buyer background information before sharing further information from your business. This exchange allows the seller to determine whether the competitor has sincere interest and capability to make the purchase. It also tests the competitor’s motivation. If they’re ‘just fishing,’ they won’t be interested in sharing confidential information.
3. Don’t Let Emotions Get in the Way
When exiting a business, your competitors can be your best friends even if you don’t consider them to be just yet. Don’t let instinctual distrust and competition interfere with your ability to get a deal you want done, done.
4. Due Diligence Takes Precedence
Due diligence is the first phase of any contemplated business sale. It is the formal process by which each party examines the ability of the other party to deliver on what was promised, and to create protective firewalls to prevent surprises, to either side, once the deal is done. Not surprisingly, it requires a considerable expenditure of time and analysis on the part of both parties’ legal teams, as well as financial and technical personnel.
Due diligence representation lets the seller not only meet its disclosure obligations but also determine the buyer’s willingness and ability to perform. This means not only making clear and meaningful disclosures to expedite the buyer’s due diligence but also conducting a reverse due diligence on the potential purchasers and structuring the deal accordingly.
5. Know Who You’re Working With
Work with a good M&A advisor and a business broker. They’ll have seen this before and can guide the business owner.
Also, remember that big companies (usually) don’t cheat—there are too many people involved. People get fired for breaking rules, and large companies cannot afford the reputational risk of behaving badly. And usually, they’ll destroy your information if a sale does not go through so as to protect you. Hopefully they will not compete against you in the future with your secrets.