How Do You Sell a Small Business?
Small businesses come in many shapes and sizes, but one thing they have in common is that at some point the owner will need to transition from the business. Whether the owner is retiring, or they’ve become weary of running their company, selling the business offers an exit plan with a great return. But how do you sell a business? In this article, Transworld will outline the process of selling a company in Denver along with other common questions on the process.
How to sell a small business?
Transworld Business Advisors’ business sale process has been proven over more than 40 years and has helped thousands of business owners reach a successful sale. The steps are as follows.
Marketing Agreement Execution
To begin the sale process, an owner will execute a marketing agreement with their business brokerage firm to represent the business for sale. The agreement will include the length of the contract (typically one year) and the fees included (retainers, commission).
Once the contracts are completed, the business broker will gather information from the business owner to build an executive summary and financial recast. Transworld uses a seller interview questionnaire to facilitate this process. This step of the process positions the broker to best market the company for sale, so it’s important that the business owner is responsive and involved.
Now that the broker is familiar with the company, they can build a teaser ad and headline to use for marketing and develop a strategic plan for bringing exposure to the Colorado business for sale. All public marketing materials will be kept blind to protect the business. Access to the name of the company and financial information are kept confidential until execution of a non-disclosure agreement.
Approval and Listing
The seller will have the opportunity to review and approve blind ads of their company before they are posted to listing websites. After the business owner’s approval, the business broker will share the business listing on Transworld’s website as well as popular business listings sites.
When a business listing becomes active, the business broker will begin to field inquiries on the business starting with an initial phone call. During the phone call, the broker will qualify the buyer and send them a non-disclosure agreement so they can learn more about the business. The qualification includes a discussion of financial qualifications, experience and the completion of a buyer profile.
Following a buyer’s review of the business’s executive summary and financial recast, if they’re interested in the company, they can set a meeting with the listing broker to review the company more in depth and ask additional specific questions about the business.
The second meeting occurs, if the buyer is seriously considering the business for sale and marks the start of the involvement of the seller in the acquisition process. In the second meeting, the business broker will facilitate a discussion between the seller of the company and the buyer. This meeting lays the groundwork for building a positive relationship between the two and is an opportunity for each professional to ask questions. This meeting may include a tour of the business.
Letter of Intent Submission
The buyer is now ready to submit a letter of intent (LOI) for the company that will include their offer price, dates for the purchase process, any contingencies and any other terms necessary to close the deal. An LOI is not a binding contract, but if accepted by the seller it includes a payment to escrow so that both parties have skin in the game during due diligence.
There may be some negotiations back and forth on the letter of intent prior to execution, but once it is signed due diligence begins. Due diligence is a serious deep dive into the company and the buyer will have access to all aspects of the business through the seller, with the exception of employees and customers. The major goal of this process is to ensure that all of the seller’s claims of the business are true and for the buyer to make their final purchase decision. If the buyer is not satisfied with their findings they can withdraw their offer and receive their escrow payment back.
To complete the business sale process, an asset purchase agreement must be co-signed by the seller and buyer. During closing, the business broker and transactional attorney will finalize contract assignments and set up the business entity for the buyer. Once the funds are dispersed, the transaction is almost completed.
Transition and Training
The final step in selling a business is the transition period. This step includes the prior owner and new owner explaining the sale to the employees and helping them see the acquisition as a positive opportunity. The owner will also provide support with the transfer of knowledge to the new owner and may introduce them to key vendors or customers.
How do you sell a franchise business?
Selling a franchise business is like selling a regular business but can include a couple key differences. The buyer will have to be signed off by the franchisor and will then need to attend the franchise brand’s training. There may also be a transfer fee to transition the business to the new owner. Transworld Business Advisors being a franchise company themselves under United Franchise Group is very familiar with the franchise resale process and can easily facilitate the process.
How do you determine the value of your business?
Determining the value of your business is often the first step in considering the business sale process for a business owner and can be done through a broker price opinion. At its most simplest, the value of a small business is based on an industry dependent multiple of the seller’s discretionary earnings (cash flow). But determining the value of a company, especially when listing the business for sale, is best left to professionals who can use their understanding of the market, current buyer trends, and sales comparables to develop a fair market value for the company.
Sometimes we work with Colorado business owners who have learned the value of their company and decided they would like to build more value into their business before selling or require X amount to retire and want to lift their company to that level before a sale. For owners interested in selling their company, there are programs like Prep to Sell where owners can address key value drivers and buyer concerns with a professional exit advisor to grow their companies fair market value leading up to a future exit.
How long does it take to sell a business?
The time it takes to sell a business is dependent on the business, its listing price, buyers and the current market. Typically, it takes 6 months to a year to sell a company, which is why it is important to plan for a sale in advance. That being said there are more buyers than there are good businesses listed for sale, so if your company is good it will not last on the market long.
What can a business broker do?
Selling a business is complex, there are legal considerations, and it’s a full time process. Working with a broker to sell your Colorado company is beneficial for a number of reasons and they are as follows.
The Benefits of Working with a Business Broker
- Access to buyers. Brokers have specific buyers in their pocket and a database of professionals interested in becoming owners.
- Access to resources. Transworld brokers have access to multiple listing platforms, a marketing department, their team’s experience and sales comparable databases.
- Large Network. Business brokers already have access to buyers, a network of professionals across the US, and partners in finance and the law to get a deal to the finish line.
- Professional. Brokers are members of industry associations, trained in business brokerage, receive continuing education, and are certified business intermediaries.
- Time. A professional business broker has the time to proactively market a business for sale in Colorado and manage the transaction timeline, while a business owner would have to run their company in addition to trying to sell it.
Selling a business in Colorado is an exciting opportunity for a business owner planning their exit, but the process can be overwhelming. Learn more about how Transworld Business Advisors can help you sell a business in Colorado by visiting our website or scheduling a consultation.
Rachael Holstein has been the Marketing Manager for Transworld - Rocky Mountain since 2016. Her work experience has been largely focused on business development and marketing in business brokerage, finance, architecture, property management, and information technology. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high lifestyle!