The Process of Selling a Business

So, you’re thinking of selling your business and riding off in to the sunset, but how do you do that? Here are the 8 basic steps in the selling process:

1. You make the decision to sell your company

Why do you want to sell? Are you burnt out and are ready for a change or just ready to retire? Or perhaps there are financial reasons and you need the money. Or is it because of personal health or family problems? Ideally you should begin getting ready to sell your business at least a year before you hope to close on the sale. Most Phoenix business brokers agree that it takes between 6 to 12 months to sell a company. Once you’ve made the decision, next determine a selling price.

2. You get a valuation of your business

Determining a reasonable selling price is a critical step in the sale process. You should come up with a realistic valuation, so that you and the buyer have similar expectations about your businesses value. Of course there are many factors involved that can affect the value, such as WHY you’re selling. For example a forced sale is likely to drive down the price. An owner–manager forced to sell because of ill health may have to accept the first offer that comes along. Enlisting the help of a professional who knows how to properly value a business is key.

3. You develop a Confidential Business Review (CBR)

A CBR contains all of the facts and figures about your business. Buyers will expect to see certain documents that show your business is profitable and a good investment.

Below is a list of some of the documents you should collect in preparation for your sale:

Profit, Loss Statements & Balance Sheets for the current and past 3 years
Business tax returns for the past 3 years
A copy of your space lease with current landlord/management company contact information
Insurance policies
Business licenses
Detailed profile describing the business
Supplier and/or Customer contracts
Employment agreements
A list of current employees with their start date, pay rate, and duties
A list of your furniture, fixtures, and equipment with current fair market values
Approximate value of on-hand sellable inventory at your cost

4. You find potential buyers for your business (whether you use a business broker or sell it yourself)

As an established business owner, you may already know several individuals or companies that are interested in acquiring your business for either financial or strategic reasons. Instead of waiting for them to come to you, be proactive and reach out to targeted buyers to gauge their interest. For some small business owners, the most satisfying way to exit the business is to sell it to their employees. Finding a good qualified buyer is one of the most time-intensive elements of the selling process.

5. You negotiate a price with potential buyers

Selling your business typically means two things: parting with something extremely emotional and realizing the value of your most valuable financial asset. These incredibly high stakes make this type of negotiation entirely unique. Some things to consider when negotiating: The price itself is not everything. Terms matter immensely i.e. how is the payout to be structured? Have a walk-away number with an understanding of the range of value you expect for the company. Make strategic concessions if you need to. Know who you are negotiating with, be familiar with the buyers true motivation. Do your homework. You should never walk into a negotiation without appreciating the buyer’s perspective. And finally, as negotiations progress, it’s easy to get tunnel vision. After all the time and effort spent, it’s hard to imagine walking away empty-handed. But sometimes that’s the best option.

6. The Buyer will conduct their Due Diligence

Once you and your business buyer negotiate the fine points of a deal and sign a letter of intent or purchase agreement, it’s time for the buyer to conduct their due diligence. During this process, the buyer will verify everything you have told them. Most buyers will have their CPA review all of your financials and tax returns to make sure you are really making the amount you claim. This process usually takes about 2-4 weeks. The seventh step is:

7. You close escrow and transfer the business to the buyer

Once the buyer has signed off on their due diligence and all other contingencies of the sale have been met, it’s time to schedule the sale closing. There are many documents involved including: escrow documents, loan documents, equipment lists, etc., many unique to a specific business. You will want to use the services of an escrow officer or an attorney. If you have a Scottsdale business broker, they will assist in all of this and also attend the closing.

8. You help train the new buyer to run your business

When you sell your business, it’s common practice to provide training for the new owner. The duration of the training period varies from one situation to the next. Training period details should be carefully outlined in the purchase agreement. Most sales include 2-4 weeks of training.