The 12 Steps To Selling Your Business
Selling a business is much different than selling one's house. There are 12 basic steps that are taken to successfully complete the divestiture of one's business.
Step 1 To Selling Your Business
Client Interview – Unfortunately, not every business is salable. New Competition, lost revenues and profits, bad books and a plethora of other reasons keep many businesses from selling.
In the client interview, the business broker will listen intently to the owner to determine if the business can be sold. Many business brokers do not charge an upfront fee to list a business so they want to make sure the businesses that they list can actually be sold.
The time and the marketing dollars that must be spent need to be accounted for by the broker by hopefully listing profitable businesses that have good books. The goal for business owners isn’t to simply get their business listed, they won’t it SOLD and the same is true for the business broker. Business brokers do not get paid until the business is sold so the client interview is a very important meeting.
Step 2 To Selling Your Business
Business brokers need accurate numbers to complete business valuation. P & L Statements and Business Tax Returns for the past 3-5 years are helpful. Most business broker will also collect what is called a Seller’s Information Form.
The SIF provides the business broker important information regarding the business in general regarding lease payments, the term of the lease, sq footage of space, business hours, years of ownership, yearly revenue and yearly expenses.
Step 3 To Selling Your Business
Step 3 of selling your business involves the actual business valuation. Your business valuation will be examined thoroughly during due diligence so getting it correct up front it vitally important.
Business brokers are able to compare your business to others in your specific industry through the BRG and their own CRM’s. Transworld Business Advisors, for example, has sold more than 10,000 businesses so their data is rich with industry comps of “sold” businesses.
Many business owners and arm-chair business valuators look online for business “listed prices.” What businesses are listed for online is not a good metric for anyone to use.
Step 4 To Selling Your Business
A complete executive summary is completed on behalf of the business owner by their business broker. Business brokers know what business buyers will want to see and they include all this information in the executive summary and then ask the business seller to review. The executive summary can be anywhere from 15-25 pages in length.
The importance of the executive summary cannot be overstated as it is the first introduction that potential buyers will see of your business.
Details in the executive summary include: History of the business, number of employees, business location and hours of operation, a complete financial recast, pictures of the business, business summary, description of products and services, revenue by category, duties of the seller/owner, marketing, potential growth opportunities, training and support after the sale, description of facilities, and the deal structure moving forward.
Step 5 Of Selling Your Business
Confidential marketing is the biggest concern that business owners have. Most business owners do not want their employees, customers or the competitors to know that they are selling.
There are specific ways that business brokers market businesses and these methods have been proven effective and shaped by decades of experience. Your business broker will share their specific methods to confidentially market your business.
Step 6 Of Selling Your Business
If your business is priced correctly you will begin receiving buyer inquires. It is not uncommon for a business to receive over 50 inquiries before the right buyer are vetted to buy your business. There are a lot of tire kickers and your business brokers handle all the details required for each and every inquiry of your business.
Step 7 of Selling Your Business
Step 7 of selling your business separate the serious inquiries from those just pretending to be interested. Legal documents and personal information are requested prior to anyone receiving further business information. Once the Non-Disclosure Agreement and the Buyer Profile are signed, THEN the executive summary is sent to the potential buyer.
Step 8 Of Selling Your Business
Once the buyer has reviewed the executive summary your business broker will set up a buyer/seller meeting. Serious business buyers will want to meet the current owner and tour the business.
Think Real Estate for a moment – If a “potential” homebuyer never wants to see the house they are supposedly interested in then they are NOT a serious buyer.
The typical buyer/seller meeting will last anywhere form 60-90 minutes. Most buyers want a tour of the business, they want to hear the history, want to know why you are selling and they have a host of other questions to ask.
Step 9 Of Selling Your Business
The offer and negotiations are the next steps of selling your business. There is a lot of emotion that takes place at this time and this is one place that business brokers earn their paycheck.
Business sellers want a big paycheck and rightfully so. Business buyers are looking for something completely different, they want an incredible deal. Helping these two opposite priorities meet in the middle can be tumultuous work.
Hopefully, the business broker that you have chosen has years of experience to help through this time of negotiation so both parties can claim victory.
Step 10 Of Selling Your Business
The place where the most deal falls apart is during due diligence. This is the place that your business broker is worth their weight in gold. Due diligence is the crucible where numbers are either validated or destroyed.
Accountants, attorneys, landlords, lenders, and other business advisors are depending on correct numbers to keep the business deal moving forward. It has been stated that nearly 50% of business deals fall apart during due diligence.
Your business broker had better prepared our books to hold up under the scrutiny that will take place during due diligence.
Step 11 Of Selling Your Business
A business closing is an exciting day for the seller, the buyer, and the business broker. Business brokerage is one of the toughest professions because very few people can walk a business deal all the way to the closing.
The legalities, landlords, the buyer and seller, and even the accountants have to be appeased to get the deal to the closing table. Many business deals involve some level of financing so your business broker will need to be well trained in creative financing to help buyers with different levels of qualifications.
Step 12 of Selling Your Business
During negotiations, the business seller and buyer reach an agreed-upon arrangement for training and the transition to the new ownership. Typically the size of the business determines the length of training required by the new owner as does their past training.
Selling Your Business
Each of the above steps could include their own 12 action steps to complete each step mentioned above. This article is written as a general idea as business deals require an enormous amount of details that only a professional business broker can navigate.
If you are considering the sale of your business the best place for you to start is perhaps with Google. Look at the reviews of the business broker that you are considering and also look at the number of business listings they currently have. These two metrics will tell you a lot about the business broker that you are considering.
View our current business listings.