Selling a business is one of the most important events in a business owner’s career. While each transaction is unique, knowledge of the complete process will help get to closing. Here are the 10 steps to selling a business:
Step 1: The business owner decides to sell the business
One of the important steps to selling a business is to decide to sell. There are many reasons someone reaches this point, including fatigue, retirement, and divorce. Regardless of the reason, this is the beginning of the process.
Step 2: Determine the market value of a business
There are many resources for determining a business’s market value: your own knowledge, a CPA, an attorney, a valuation company, or business brokers. A good broker knows the market and what things are selling for.
Step 3: Gather pertinent information into a marketing package
A marketing package may be the first interaction a prospective buyer has. Since you can only make a first impression once, the marketing package should include information regarding financials, assets, employees, and the operation of the business.
Step 4: Market the business
Once you have a complete, concise package, you’re ready to approach potential buyers to make them aware of your business. When considering selling your business yourself, ask yourself if you would do your own dental work, re-wire your electricity or cut your own hair. You MIGHT be able to do it, but are you willing to take the chance you’ll do it right? It’s a tight rope over alligators that is better left to a professional broker you trust.
Step 5: Identify potential buyers
For every profitable business, there are prospective buyers in the market. The key is to establish who they are if they have adequate funding, and if they are a good fit. All potential buyers should sign a confidentiality agreement. A number of pre-qualification methods can then be used to ensure a prospective buyer is financially secure, a good fit, and has a serious interest in your business.
Step 6: Meetings with both parties
The meetings with a seller are of high importance in a buyer’s final decision. A buyer will rely on financial statements to determine if a business is being sold for the right price tag, but will often base the decision to buy on the seller and the company’s appearance.
Step 7: Offer to Purchase/Letter of Intent
Once a buyer has met with the owner and completed the analysis of the financial statements, he will have three main options: pass on the business, ask for more details, or prepare a formal offer. The two most common legal methods used for formal offers are a Letter of Intent and an Offer to Purchase. A formal offer is usually accompanied by an escrow check, or earnest money, essentially a preliminary down payment on the total.
Step 8: Negotiate and structure the deal
Once an offer to purchase has been presented, the seller accepts, declines, or negotiates. The sale price is only one of several negotiating points. Other variables are payment terms, length of training and terms for remaining employees staying with the business.
Step 9: Discovery
Due diligence is performed by the buyer to ensure that the books, records, and operation of a business are as they have been portrayed. If it is a well-running company, then the due diligence should be effortless. If there are problems with the business, then due diligence may take longer and be more complicated.
Step 10: Closing
Once you and your buyer agree to the fine points of a deal, it’s time to schedule the closing where documents are signed, funds transferred, the sale recorded, and the agreed-upon transition to the new owner begins.