The process of selling a business is often lengthy and requires more work than most people think. Selling a house is a similar process but with a business, there are other components that need to be evaluated such as employees, business assets and operations.
A transaction can be an emotional rollercoaster, after all you put your blood, sweat and tears into this venture. To ultimately close a deal, there are many important steps along the way that need to be achieved successfully. We will take a look at these in greater detail.
The Process of Selling a Business
Step 1 – Determining Your Exit Strategy
There are several things to consider when thinking about selling a business which include when you want to sell, what you want your buyer to look like, percentage of the business you are seeking to divest, staying on board as a consultant, etc. Strategically building an exit strategy for selling your business can make a huge difference on the overall value you create upon exit.
Step 2 – Hire a Business Broker
Working with a business broker or M&A advisor can be advantageous when it comes to selling your business due to their expertise, industry experience and vast network of buyers. Sometimes, business owners claim they don’t want to hire a broker if they are selling to a family member. However, an intermediary can prove to be highly valuable to keep any bad blood from getting in the family arising from intense negotiations. In any case, it’s worth doing the research to determine which path to take.
Step 3 – Financial Review
The biggest concern for buyers is the financial strength of the business. Usually, buyers will have a certain price range that needs to be supported by financial metrics such as revenue and EBITDA. A business with low revenues and high costs can spook away potential investors. Your broker will analyze the business financials and find adjustments to increase your bottom line.
Step 4 – Valuation & Price Expectation
Concluding price for a company takes a detailed analysis and access to a lot of information. You will need to give your broker tax returns, financials, asset lists, leases and contracts in order to complete this step. This is the first major decision as a seller to agree on with your broker. The business valuation is the starting point for every negotiation. Price it too high and you won’t facilitate any interest. Price it too low and you risk leaving money on the table. Make sure to find an experienced broker or advisor to help you correctly value your business.
Step 5 – Prepare Marketing Materials
Following the valuation, the next step is to prepare marketing materials to advertise your business. This usually consists of a one-page executive summary (teaser) summarizing key stats and information about the company. Additionally, a confidential information memorandum (CIM) is written outlining all of the components of the business. This is usually a 30 – 50-page packet. The materials must be properly built out to reflect a compelling story about the company and why it is an appealing investment for buyers.
Step 6 – Go to Market
The work product engineered in step 5 is then marketed to a buyer pool. The buyer pool is a list of potential investors that your broker or advisor thinks would be a good fit to purchase your business. This stage can take anywhere from 3 – 6 months to generate interest around the company.
Step 7 – Qualify Buyers
Before moving forward with an LOI, your broker will qualify the buyers to make sure they have the financial strength to purchase your company. Qualifying the buyers beforehand prevents a deal falling apart at the closing table.
Step 8 – Field Offers (LOI)
As buyers in the market become increasingly interested in your company, they will begin putting in offers in what is called a letter of intent (LOI). It is up to you and your business advisor to declare which offers are good and meet your exit goals.
Step 9 – Negotiate
When serious buyers are qualified the deal moves into the negotiation stage. This is usually the most difficult step of the transaction process and having an experienced broker can be a tremendous advantage. Attorneys get involved at this point to draft the purchase agreement. The buyer and seller will each have their own representation negotiate the terms.
Step 10 – Close
After the purchase agreement is approved by both the buyer and seller, a closing date is set. If financing is involved then the closing date could be pushed back until it is cleared. Then, both parties meet at the closing date, sign papers and funds are wired.
Don’t Go Through The Process of Selling a Business Alone, Investment Business Brokers Can Help
If you have any other questions about the steps of selling a business or are considering selling your business, contact us and we are happy to share our knowledge and services with you. If you need a broker in Texas, Investment Business Brokers gets deals done. Whether we are selling your company, helping you plan for a transition, or leading you to your ideal investment opportunity, we bring the experience of our best team to bear. Call Investment Business Brokers at 972-266-4525 to learn more about our business brokerage services.