The Process of Selling a Business
1. Set a Realistic Sale Price and Structure
Business brokers and M&A advisors often hesitate to tell you that your business might be overpriced. However, it’s essential to understand that the selling price of your business must be realistic to attract serious buyers. Avoid choosing a business broker based solely on who gives you the highest valuation. Instead, select a broker who can accurately evaluate your business considering market conditions, industry trends, and proven valuation methods.
Overpricing your business can lead to prolonged market exposure, potentially causing it to remain unsold. A business that lingers on the market for more than 18 months can attract negative attention from employees, competitors, and clients. This extended exposure can lead to perceptions of an undesirable investment, reducing its appeal and value. Conducting a professional business valuation before listing your business will help ensure its marketability.
2. Maintain Fixtures, Equipment, and Facilities
Prospective buyers expect all equipment to be well-maintained and in good working order. Prepare a detailed list of equipment, including model and serial numbers, and consider having a third-party inspection and valuation. Businesses with accurate financial records, well-kept facilities, and modern equipment are more attractive to buyers. Buyers may significantly lower their offers if the business appears neglected or requires improvements.
3. Provide a Valid Reason for Selling
Buyers are naturally concerned about why you’re selling your business. They may worry about factors like a declining industry, competitive pressures, or undisclosed issues that could affect the business’s future. Offering a clear, logical reason for the sale can prevent buyers from assuming negative circumstances, which could lead to lower offers or loss of interest.
4. Assemble an Advisory Team
Successfully selling a business requires a team of experts. Start by engaging a reputable business broker or advisor, followed by an attorney with experience in mergers and acquisitions. Your accountant will also play a crucial role in the sale. Your business broker should be well-versed in exit planning, business valuation, and transaction management to help you achieve a successful sale.
5. Prepare a Comprehensive Marketing Package
A thorough and effective marketing package is critical. Be prepared to provide detailed information during the due diligence phase. This includes having a complete “offering memorandum” ready for potential buyers. In today’s digital age, buyers will conduct their research, so a professional business valuation can help justify your asking price and defend against competing offers.
6. Target Qualified Buyers
Once you’ve prepared a detailed marketing package, identify and target qualified buyers. Understand the different types of buyers—financial, corporate, private, or strategic—and screen them carefully to ensure they have the capability and intention to successfully acquire and operate your business. Avoid buyers who lack the necessary funds, skills, or vision.
7. Negotiate Effectively
When you find a qualified buyer, plan your negotiation strategy carefully. Work with your M&A advisor to address negotiation points and avoid getting sidetracked by technicalities or emotional factors. Set clear goals and be prepared to make concessions in exchange for reciprocal benefits. Focus on mutually beneficial outcomes and explore various options before finalizing any agreement.
8. Close the Deal Promptly
Even promising buyers can change their minds quickly. Once a buyer commits, secure a written offer with a substantial, non-refundable earnest money deposit. Proceed with negotiating the finer details, drafting the definitive sales agreement, and preparing all necessary closing documents. Ensure the transaction is completed efficiently and that the funds are secured before considering the sale finalized.