As a business owner, there may come a time when you decide to sell your business. This can be a daunting task, but with proper planning and execution, it can be a smooth and profitable process. In this guide, we’ll break down the steps involved in selling a business in 2023 and provide you with valuable insights and tips to help you achieve your goals.
The preparation phase is crucial for a successful sale. It involves careful planning, goal-setting, and organization. The first step is to determine why you want to sell your business. This will help you set your goals, including financial outcomes, transition timelines, ideal buyer types, and more.
Once you’ve defined your goals, you need to organize your business for sale. This involves ensuring all financial statements, internal processes, employee contracts, and customer/vendor relationships are documented clearly for an outside party to interpret. Being “sale-ready” will make the process smoother and more efficient.
Valuation is the process of determining the value of your business. This information will provide you with a baseline understanding of what to expect on the market. While valuation does not determine the sale price, it can be a useful guide for negotiation purposes.
To get a valuation, you will need to compile supporting documents primarily centered around the income statement and balance sheet for the past three to five years. This will help you prove your company’s value drivers.
There are two primary methods for selling your business: through an intermediary or independently. An intermediary, such as a business broker, M&A advisor, or investment banker, can help sell your business. They have an established network of qualified buyers and possess negotiation experience. However, this service comes at a cost, and you need to understand the intermediary’s experience and processes before hiring them.
Launching independently is another option, but it is most applicable to much smaller businesses where transactions are generally less complex. Business owners can list their businesses for sale on various online marketplaces, connect with buyers, and manage the process digitally.
After interacting with buyers on the market and sharing preliminary information, an offer may be presented. While most terms in an offer are typically non-binding, it is crucial to carefully review an offer’s terms to gauge their equitability and alignment with your goals.
The buyer’s offer communicates their preliminary understanding of the value of your business and a proposed deal structure to match it, based on the facts they’ve analyzed up to this point. If an offer isn’t acceptable, now is the time to negotiate to see if there is a middle ground that satisfies both parties. This could be the overall price, deal structure, length of due diligence, seller involvement post-sale, and more.
Due diligence is the process where buyers investigate your business to verify any and all claims made about the business. Buyers may adjust their terms based on what is discovered. During this time, it is important for sellers to further investigate the buyer’s background and confirm whether they have the financial capacity to close the sale.
Being able to provide relevant documentation to objectively support your initial claims speaks volumes about you and the business you’ve built. Every business has its issues, so it’s best to be upfront and discuss them with the buyer. These issues will inevitably be uncovered, so it’s best to have control over how and when they are brought up.
When buyers are satisfied with their findings, they can conclude due diligence and move toward the closing. The purchase agreement is a formalization and expansion of the offer. It is a legally-binding contract that outlines the final sale terms. It is strongly recommended that sellers hire a qualified attorney to review it prior to signing.
Negotiations can continue at this point while all final details around the deal are being ironed out. One of the conditions to closing is the buyer’s ability to secure financing. Depending on the route they have taken to finance the transaction, this can add time to (or even derail) the process, even if the purchase agreement is signed. However, once both parties have signed the purchase agreement and the buyer has received confirmation from their lender, the deal is complete.
Selling a business can be a complex and challenging process, but with proper preparation and execution, it can be a rewarding experience. It’s important to understand the general stages of the sale and the key points at each phase. Becoming familiar with the stages will allow you, as a business owner, to make well-informed decisions that can lead to more efficient and desirable outcomes. Remember, every transaction is unique, and the timeline of the sale ultimately depends on how long you stay in each stage. So, plan ahead and take action with confidence.
First reported by Forbes.