Every owner has vague thoughts of selling the company at some point, with even vaguer ideas of how to go about it. An owner tends to be totally focused on running the business, but he or she should know that every business is an acquisition target. That's because every business has something other businesses want: sales, talent, manufacturing or distribution capacity, unique qualities, entree to a desired market or the ability to create synergy, for example.

That means any business can be sold, once the owner has decided to sell. But, to get the value you have earned by building the business, you have to be smart about it.

Don't Try This Yourself
We see companies sold by owners all the time. That's a good way to leave money on the table. Serious money. As a rule of thumb, we believe that companies sold by their owners are sold at a discount of 20 to 35 percent below market value.

Why? Because owners treat buyers as though they were clients needing to be pleased and because owners don't know the value of their businesses. In fact, most buyers are buying something other than what sellers think they are selling. This raises a law of selling the business:

- If you don't know what you're selling, you don't know its value.
- In one real-life example, we represented an owner who had an expectation that his company was worth between $16 million and $19 million. Yet we were able to sell it for $31 million (which wasn't the highest bid!). Which brings us to another law of selling your business:
- Never state a price, because you will never get more than that price, and probably less. The way to get the highest value is to let the market determine the price. The way to do that is by discretely obtaining offers from multiple buyers with diverse motives for wanting the company.

Negotiating with multiple buyers, however, is another thing you shouldn't try yourself. It raises credibility and trust issues with potential buyers, and it distracts you from running the business. The multiple-buyer process is the only way to get top price.

Value Comes from the Multiple-Buyer Process
To understand the multiple-buyer process, consider the single-buyer process. When you deal with one buyer, you deal with a person who is not going to negotiate against himself and may not have total confidence in his offer in the first place. As a seller, you have no way to validate the value a single buyer has placed on your company. This validation is important for both sides of the transaction.

Importantly, once the seller accepts an offer, the process of due diligence begins. With only one buyer, due diligence becomes a negotiating process where the business' warts are spotlighted and each one devalues the price by some amount. The seller has no alternative. There is no one waiting in the lobby to take the buyer's seat at the table. The longer the process, the greater the erosion of price. That brings us to law number three:

Never negotiate a sale with only one buyer, unless you want to see the value erode. With multiple interested buyers, on the other hand, a deft intermediary can use that interest to stimulate higher offers. Knowing that there are other players in the mix, buyers have increased offers of their own accord. If an offer is accepted and the due diligence hits a bad stretch, you can push back from the table and consider alternatives.

We worked with one company that had already chosen its sole buyer. The price started at $70 million and was eroded through due diligence to $62 million. The buyer wanted to negotiate longer and erode the price further. We finally convinced the owner to let us solicit another buyer to stop the bleeding. The result: the company sold to the original buyer for $63 million.

Another key reason for using the multiple-buyer process is to leverage diverse interests. One buyer may want market geography; another may want proven manufacturing capacity. Which one will pay more? Simple. The one who sees the greatest going-forward value.

The excellent values that businesses are getting today are driven by intangibles. The value lies in what the business would do in the future with a strategic acquirer. A strategic acquirer is buying potential (your "intangible" assets), whereas a financial acquirer or even a competitor is buying past performance. That makes the next law obvious:

Seek strategic buyers to enhance value, even if that's not who you ultimately sell to.

More on Why You Shouldn't Try This Yourself
Even knowing all the rules, the owner cannot effectively sell his or her own business and cannot conduct the multiple-buyer process. But there are more reasons why an intermediary should handle this most crucial of all deals.

Confidentiality is easier to maintain. If word leaks that you're selling, employees write and distribute resumes, competitors tell your customers, and the sharks smell blood.

Qualifying buyers is critical. Can a buyer finance the deal? Is its management philosophy consistent with yours? Will you want to work for the buyer if that is a condition of purchase?

Intermediaries know what information to release to buyers and when. Some information can be released before a letter of intent is signed; some should never come out before the due diligence process. They key is to know what and when.

Finally, an intermediary can be an emotional firewall. He or she has the ability to defer to an absent decision-maker on any sticking point. He or she is unlikely to get caught up in the emotion of the deal. It gives you safe distance ... and lets you continue to focus on the business.

Granted, an intermediary (business broker, merger-and-acquisition firm or investment bank) will cost you money. Those fees can look pretty daunting viewed upfront. But, viewed from atop an extra $14 million (in the example cited earlier), it's a different picture. The right intermediary should cost you nothing.

Phillip L. Currie is Managing Partner of Shoreline Partners LLC, a San Diego-based, middle market investment banking firm that handles sales of privately held companies with $10 to $200 million in revenue and acquisitions for public companies. Currie can be reached at 858/587-9800 or via Email.