10 Steps in selling your business

Whether you are closing a chapter in life by retiring or jumping into a new one with your newfound interests, the process of selling your business looks more or less the same no matter the reason.

1. Get a business valuation

You can expect your business to be priced anywhere from two to six times your current cash flow. However, where the multiple sits in this range depends on the market for similar sales and trajectory projections for your industry. Third-party valuation agencies can help you in determining a more precise figure based on sales, revenue, inventory, debts, and add-backs.

2. Talk to your lawyer and CPA

Your attorney and accountant will be your pillars for this whole process. Talk to your attorney about the deal terms and which are non-negotiable. Work with them on the contract and agreements needed later in the process. Discuss your tax returns and financial statements with your CPA. Make sure to prepare and package at least three years’ worth of financial information for potential buyers. You should also ponder the tax consequences of the sale.

3. Ready your business for sale

Start the process from a position of strength and earn the trust of potential buyers. You can do this by organizing all documentation needed such as your financial books, inventory, and standards of procedure. The more documentation, the better. Read our previous blog for more details.

4. Create a CIM

A Confidential Information Memorandum or a CIM is an overview that helps a potential buyer determine whether to move forward with your business or not. Depending on the size of your business, it can be a one-pager or a 50-page document. It gives a high-level look into the strengths, opportunities, and past and projected financial performance of the business. Take note that potential buyers may present this document to investors, lenders, and banks.

5. Keep the process confidential

Have your attorney create a Non-Disclosure Agreement (NDA) for potential buyers to sign before revealing proprietary information about your business. Also, make sure that your employees, vendors, customers, and competitors do not know that you are selling the business.

6. Reach out to potential buyers

Tap into your network of fellow business owners, accountants and lawyers. Ask if they might know someone who might be willing to buy a business. You can also have your business listed on business-for-sale marketplaces at a cost. The most popular ones include BizBuySell, BizQuest, BusinessBroker.net, and Craigslist.

7. Sign a letter of intent (LOI)

Set up calls with potential buyers who have inquired about the business and signed the NDA. Evaluate their interest and ability to purchase and run the business after the sale. If you feel their goals align with yours, you’ll want to have the basic terms of the process be put down in writing through a letter of intent or an LOI. The LOI usually includes the purchase price, financing terms, exclusivity clauses, timeframe for due diligence, and target closing date. While it is non-binding, it serves as the foundation for the eventual final agreement. Let your attorney examine the LOI first before signing.

8. Undergo due diligence

This is where potential buyers will really get to the meat of whether they would like to acquire your business or not. Buyers can and will ask every question under the sun in this phase. It is important to answer these questions in a prompt manner to keep the momentum of the deal going. They can ask about employees, insurance policies, real estate, supplier relationships, and much more so it is important to have organized documentation on hand. But also, this is also time for you to quiz the buyer. Investigate their credit record, management experience, and their future plans for the business.

9. Negotiate and finalize the agreement

A purchase agreement will be drafted if the buyer is satisfied after the due diligence process. This is the final, legally-binding contract that spells out the terms and contingencies of the sale. Expect to be closely working with your attorney at this stage as they negotiate and finalize legal and financial details. Upon signing the agreement and the buyer transferring the payment, the deal is closed and your business is officially theirs.

10. Aim for a smooth transition

However, your involvement does stop at the close of a deal. Depending on the terms listed in the agreement, you will assist in introducing the new owner to employees and key clients, helping them take over the operations, and transferring proprietary information to them in order to make sure the business will run at an optimal level after you leave.

Thinking of taking the leap and selling your business? Have Treehouse Equity by your side. You can reach out to us through the contact form below