Tips to Sell Your Small Business Quickly
This page will discuss how to sell a small business quickly using an auction. An auction is the process of buying and selling any time, including companies, by offering them up for bid, taking bids, and then selling the item to the highest bidder. Auctions are becoming more popular partly due to the pseudo-endowment effect, which means the bidder feels a sense of ownership and increases motivation to win and bid higher than initially intended. Bidders’ feelings at auctions can be attributed partially to competition and somewhat to pseudo-endowment. Auctions benefits include:
Create competition
Enhance buyer perception
Add sense urgency
External Validation
Fear of Loss
Definitions
Bid
The amount a buyer is willing to pay. A bidder is expected to make the lowest possible bid and bid more as higher bids are made.
Reserve Price
The minimum a business can be sold for regardless of the highest bid. This eliminates any risk of obligation to accept a too-low offer.
Starting Price
The starting price is usually 60% of the reserve price but can be set at any level to maximize interest and emotion. Many auction participants describe the intense emotions during the bidding process and the tendency to over-bid their pre-determined limits as “auction fever.”
Blind Auction
In this type of auction, all bidders simultaneously submit sealed bids. No bidder knows the bid of any other participant. The highest bidder wins if the price submitted exceeds the reserve price.
FAQ About Selling A Business By Auction
Q. How long will it take my business to sell by auction?
A. 30-90 days after the company is prepared and bidding begins.
Q. Will buyers want to visit the business before placing a bid, and how is that managed?
A. Some buyers will want to visit, and some won’t. It benefits getting higher bids if the buyer invests time in a visit and conducts due diligence. Due diligence is only allowed after a signed NDA and proof of funds or credit check
Q. How will buyers pay, and is all the money due upfront once the bid is accepted?
A. Buyers will pay an earnest deposit of 10% of the bid paid by check. The balance will be paid by wire transfer or certified bank check at closing.
Q. Who handles the money, and is the earnest deposit due before the end of the auctions?
A. The seller’s attorney will serve as the escrow agent, or the seller may request Bizprofitpro to serve as an escrow agent. The Earnest deposit is due before the auction ends. Proof of funds or financing must be in place before the end of the auction.
Q. Do buyers have a due diligence period in the auction process, and when does it occur?
A. Due diligence can be done anytime during the auction upon mutual agreement between parties.
Q. Does the seller have the right not to accept the bid even if it meets the reserve price?
A. The seller must accept offers that meet or exceed the reserve price.
Q. Are buyers expecting to buy the business at liquidation prices?
A. Buyers are making bids among other bidders, so the added competition will push the price closest to the actual market.
Q. On what site is the auction taking place?
A. Bizprofitpro manages the auction confidentially online.
Q. Will the name of my company and location be given when marketing for the auction?
A. No, confidentiality is maintained with an NDA at every step until the company’s transfer is made.
Q. How will you determine a price to start the bidding?
A. Specifying the start price is a psychological determination. We set starting bids at a 60% reserve price to take advantage of the pseudo-endowment effect. This is the concept that bidders feel a sense of ownership and bid higher than initially intended. The reserve price protects the business from selling for less than minimum expectations.
Q. What can I expect to make if the business is sold via auction?
A. You can expect to meet or exceed the minimum reserve price. If multiple bidders exist, the upside could be substantially higher than the reserve price.
Selling a business by auction is not the right choice for every business. A market that is too small will not 
lend itself to being a successful auction for a business. Additionally, the industry the business is in will also play a significant factor in the demand for the company. We have data that can predict the likelihood of the best strategy to sell your business. There is little risk in using an auction to sell your business because the Reserve Price prevents you from receiving a bid lower than your minimum price target.
A pricing strategy must be developed before you decide to sell your business. The price must be based on the actual value of the company. We offer free preliminary business appraisals so you will know what your business is worth. We will also give you everything you need to get the most money for your business. Schedule a call with us or call if you are considering selling a business by auction at 800-905-1213.
