Guide to Selling a Business: How to Sell Your Business to a Competitor
Selling a business you worked tirelessly to build from the ground up can be a difficult decision. Perhaps your business is struggling, or you are facing burnout. Or maybe, you just have other career goals you want to pursue. Whatever the reason, finding the right buyer can be difficult. You will need to decide whether to list it with a broker, an online market or try to sell the business to a competitor. It takes a lot of preparation to ensure a business can thrive in the hands of someone else while still also getting the best deal possible out of it.
Before you sell your business to the first eligible bidder, make sure you are making the best decision all around. Here’s what to consider before you sell your business to a competitor.
Pros of selling your business to a competitor
As a business owner looking to sell your company, you probably won’t have a ton of time to market your business and sell it yourself. That’s why many business owners choose to sell their businesses to a competitor. Not only do competitors already know the market, but they will be more successful in securing financing when purchasing a company in an industry they know very well.
If you think about it, the most obvious buyer for your business is someone who is currently your competitor. Not only are they likely already qualified to buy your business, but you likely already know quite a bit about them from prior analysis of your competition. Even though they are your competition, you can trust that they understand the ins and outs of the market because they are running a company similar to you — and ideally, just as successfully as you.
Of course, there are many other pros to selling your business. For one, you can free up a significant amount of time after you finally manage to process the sale. For some sellers, more time is the biggest gain they receive from the transaction. However, if you feel you aren’t quite ready to give up the reins entirely, you can always see if it’s possible to stay on as an employee or consultant.
Cons of selling your business to a competitor
One possible drawback to selling your business to a competitor is the lack of a clean break. You may feel more inclined to continue assisting with the business in some way — even though you no longer own it — because you want to see the business succeed no matter what.
As a seller, you will also want a firm grasp on any limitations or restrictions in place in the event you want to get back into the same industry again.
“The real issue is for the competitor buying the business,” said Adam Scavone, managing attorney at Scavone Law. “The buyer needs to worry that the seller will go back into business as a competitor the next day. That situation can be disastrous for the buyer, who likely spent a lot of time, money and energy clearing the field of an existing competitor.”
“Getting the seller’s agreement not to compete is imperative. Any buyer who goes ahead with the sale of a business without getting a comprehensive agreement from the seller not to compete is playing with fire,” he said.
Dos and don’ts of selling your business to a competitor
As you walk through the process of selling your business, you’ll want to first understand the difference between a merger and acquisition. Merging a business is when you combine two businesses into a single entity, which is pretty uncommon. An acquisition is then the company that’s being sold is absorbed by the acquiring company, which is similar to purchasing a business or franchise.
Here’s a quick list of some dos and don’ts when selling your business to a competitor.
- Request to work with a merger and acquisitions advisor
- Be hesitant and reserved
- Request to see an initial draft
- Ask questions
- Request financials to prove they can purchase your business
- Determine your valuation
- Create a merger or acquisition agreement
- Transfer business ownership
- Register business changes with the state you’re operating in (when applicable)
- Jump at the first offer — a genuine buyer won’t mind waiting it out if the business is worth it
- Sign any contracts without a lawyer present
- Let your emotions get involved
- Slow down current business operations
The worst thing you can do when trying to sell your business is to sit back and let others make the decision for you. In order to ensure the best sale possible, you as the current owner need to be deeply involved in the process.
Selling a business: tips from business experts
If you’re thinking of selling your business to a competitor, take the advice from other business owners who have been there before.
Selling a business is no easy feat. Not only are you trying to keep your business afloat, but chances are you’re working hard to maintain a positive business image for prospective buyers. The time spent on negotiations is significant and can be burdensome.
“My business partner and I sold our small business to a competitor this year after 14 years of running, growing and nurturing from birth,” said Lisa Colantuono, president of AAR Partners. “The sale process is much more granular and time-consuming than I ever could have imagined. The due diligence took a couple of months detailing everything from legal to accounting to technology and beyond, along with multiple meetings in between. Selling a business is a full-time job on top of keeping the business running full-time.”
You can’t sell a business overnight. Even if the best deal in the world comes along, you don’t want to get ahead of yourself by selling too quickly. If someone is genuinely interested in financially able to buy your business, then they will be patient and work with you to ensure all bases are covered.
“If you’re thinking about selling your business, I would suggest cleaning up your financials, boosting your sales and getting all business contracts in order months before you’re even considering starting the process,” Colantuono said. “It’s very important to know the details of each contact, and more specifically, their severance clauses.”
“This will help make the actual due diligence run smoother and quicker. And most of all, be patient. It’s a winding, twisting roller coaster ride with a lot of ups and downs,” she said.
Know when to walk away…for good
It’s likely that you’re somewhat emotionally attached to the business you built from the ground up — learn how to detach from the business, especially if you are no longer a part of it. And if you sell your business to a competitor, it’s all the more likely that you will continue assisting in the transition process. If you’re not careful, however, you could find yourself unable to detach from your now-sold business entirely. Many business owners find themselves still working for a business that they sold because they supposedly had other, bigger priorities.
“I sold to a competitor that wanted to use the technology and know-how internationally,” said Michael Alexis, the current director of marketing at Museum Hack. “The best thing I did was immediately discontinue any formal responsibilities with the company. The biggest headache came from trying to help the new owner with issues that came up.”