Why Selling Your Business is Nothing Like Selling Your House

Alan Dinnie
Alan Dinnie
Why Selling Your Business is Nothing Like Selling Your House

Some might draw comparisons with what a business broker does to that of a real estate agent. 

Whilst online technology can be used to sell your own home, some mistakenly think the same can be done with a business.

Simply place an advertisement on a website that lists businesses for sale and wait for the stampede of cashed up willing buyers competing against each other to buy your business…and they are happy to pay more than it is worth.

If only it was that simple.

Newsflash….it isn’t.

There are many reasons why selling your home is very different than selling your business. 

When selling a home you can physically see about 90% of what you are buying.

When selling a business you can only see about 10% of what you are buying. That is why the process is more complex, takes much more time and why there is a process call Due Diligence.

And a house will sell at a price. Afterall the land is worth something even if the house isn’t. 

However a business may be worth nothing. 

And that comes as a shock to many business owners. Particularly as many have put years of toil and money and time into their business. A sale of their asset was to pay for their retirement plans so they can live out their life in blissful joy.

When Selling a Business, Confidentiality is Key

When you or a real estate agent goes about the process of selling your home, the aim is to make sure that as many people as possible know this. This involves splashing pictures and videos online and maybe in the newspapers with the intention that you widely advertise that the home is for sale.

When you are selling your business, it is different. Advertising is the same way as you do a house is not done. This is because if it was known that your business was for sale, then it could be disruptive for the business and potentially detract from its value. 

Knowing a business is for sale can make employees and customers and suppliers nervous. And your competitors are likely to use it against you by targeting your customers, pitching to their fears.

Maintaining confidentiality of the sale of your business means any advertising is done so as to not disclose it is your business for sale. And there is a reliance on discreet contact being undertaken with potential buyers.

There Are No Rules

When selling a house, there are established laws and rules that must be followed. The legal documents needed to sell a house are essentially standard forms. Compare that with selling your business. The documents needed to sell your business are very complicated and have to be created from scratch for every transaction. Unlike the one-day visit from a home inspector, the due diligence process when buying a business is long and often times contentious.

Additionally, real estate professionals go through a tremendous amount of training before they attempt to sell a house. Most real estate agents are intimately familiar with their geography. Compare that with selling a business. Almost no states have regulations on who can sell a business. While it is important to use an investment banker or broker to assist you with the sale, it is equally important to make sure you get a qualified professional with experience in your industry. Get references and match the type of business you have with the experience and skill set of the investment banker you want to use.

Intangibles Can Be a Huge Part of a Business' Value

Ok, if you happen to own the house where Frank Sinatra once lived, you probably have a house with a large intangible factor, but most houses do not trade based predominately on intangibles. For the most part, house values are determined by very measurable items such as number of bedrooms or acres of land.

Compare that with selling a business, where 100 percent of the value can be related to intangibles. Established brands, for instance, do not need to have any profitability associated with them at all to sell for large values. New or novel technology that addresses a future need can have huge value potential before the company is even fully formed. Making sure that buyers pay for intangible items is something a skilled investment banker will do during the sale process.

Do not get lulled into the idea that because you have successfully sold many homes, you can also sell your business. While your house and your business are similar in that they are probably two of the largest assets in your personal portfolio, you need an expert, specializing in the sale of businesses.

At TKO Miller LLC, we are passionate about educating business owners about the process of selling their company in an open and completely transparent manner. If you are a business owner and you want to learn more about investment banking, transaction timing, selling your business, or other frequently asked questions, please visit our Seller's Corner www.tkomiller.com/sellers.

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