Selling A Business
Questions to Answer Before Selling Your Business
Business owners will rarely have ever dabbled in the sale of a business. In fact, even the thought of it can be daunting which is why it’s best to have an expert assist you along the way. At the very least, you should be able to answer these following questions before you decide to move ahead with selling your business.
How much is my business worth?
One of the most important questions to ask yourself is “how much is my business worth?”. We understand how to evaluate businesses and their worth in order to give you a realistic view of the market. Our business valuations are complementary and require no obligation from you. This is the most crucial step to take when selling your business.
What will the net proceeds of the sale be?
After the transactions fees and taxes you pay, you’ll be left with the net proceeds of a sale. This is how much money you’ll get from the sale of your business and it’s an important value to know because it’s a way of representing the value of your company.
Understanding how the transactions work and what portion of the purchase you’ll be paying with deferred payments will help you get a better understanding of the entire structure. With many complications to think about, you’ll want to involve your accountant and financial planner to help you make the best decisions for your business.
What if my business isn’t worth what I assumed?
There are many factors that contribute to a business’s worth. For instance, your business might not be in an industry that demands premium sale prices or your business’s efficiency might not be up to par with industry standards. Such problems can negatively affect your business’s valuation, resulting in a much lower worth than you would assume.
In these cases, there isn’t much that you can do to fix your issues. However, we can give you guidance on what needs to change and how you can improve your company’s valuation. In most cases, we can assist you in making these changes unless they are outside our areas of expertise. In these situations, we can refer you to consultants that can help improve your business instead. All of this can delay the sale of your business, but they will always improve the value of your company.
How long will it take to sell my business?
Selling your business will typically take anywhere from nine to twelve months. Because it’s such a long process, we would definitely recommend that you consult a business brokerage office such as us. During this long period of time, you’ll still need to keep your business operating and with the added stress of the sale, you might find yourself overloaded with stress. You want your business to be efficient and perform well when you finally make the sale, so let us take care of the legwork for you. Check out our Sale Process section below to help you get a better understanding of the entire process.
Will I remain confidential during the sale?
Your confidentiality is one of the most important concerns for us. We’ll ensure that your employees, customers, competitors, suppliers and every other private piece of data is kept secure during the sale of your business.
When looking for buyers, we pre-screen all potential candidates before we provide any details or information that could reveal the name of your business or any other details. We have successfully helped dozens of owners sell their businesses and we understand the importance of keeping certain details hidden before the sale is able to proceed. If you wish to learn more information, then don’t hesitate to contact us.
The Sale Process
The Nine-Step Sales Process
In order to sell your business quickly and for the highest price, we need to follow a strict process that is tailored to your company. We have plenty of experience that will help us determine the best process for you. However, we do have a general outline of how our sale process works, and we can describe it with the following steps:
- Our Initial Meeting
To start with, we like to meet all of our clients. This is to give us a good understanding of what your business is and how we can start valuing it. This is a highly customizable part of the sales process. We can meet you at your office, you can visit our offices, or we can arrange to meet in a neutral location of your choice. The goal of the meeting is to get to know you, understand what you want and to help you determine the long-term goals of the sale. We’ll also give you a brief outline of the sales process and explain our fees and engagement process.
This part of the sales process is done in strict confidence and we’ll only move ahead once we have your permission. Next, we’ll provide you with a complimentary valuation with no obligations.
- Valuation of Your Business (Broker’s Opinion of Value)
Valuations take into account many different factors such as the financial performance of the business, the type of industry you’re in, the level of risk involve and also the type of buyer that would likely purchase your business. We’ll also require some financial information from you such as the following:
- 3 years of business tax returns
- 3 years of profit and loss statements in a 12-month comparison format
- 3 years of balance sheets
- Year-to-date profit and loss statements in a monthly comparison format, and profit and loss statements for this period for the previous three years in the same format
- Year-to-date balance sheet
- Approximate fair market value of company assets and a list of all company-owned assets
- The average value of inventory of saleable product on hand at any time of the year
- Accounts receivable ageing report
- Summary of revenue distribution by customer
- Lease information
- A copy of the tax bill and/or a copy of any real estate appraisal (if applicable)
With this information, we’ll be able to get back to you within 3 to 5 days with a broker’s opinion of value. This report will detail a probably selling price, the terms of the sale you can expect to receive and the type of buyer that would likely be interested in purchasing your business. We’ll also pre-screen the entire transaction with third-party lenders to find out of the business can be financed. If you don’t pre-screen the transaction immediately, then we’ll carry it out shortly after we list your business for sale and complete a confidential business review.
All business sellers need to know what the net proceeds of a sale will be after paying any fees and taxes. We advise you to speak with your accountant and financial planner in order to determine if the money you’ll receive is sufficient for your financial goals.
- Build a Deal Team
A complex transaction such as selling or buying a business is best dealt with if you put together a team of advisors that will keep you informed. The team should typically include the following:
- Our service as an intermediary
- Your accountant
- Your financial advisor
- A transaction attorney
If you feel like you’re lacking in any of these crucial team members, then we can recommend you any team member that you need to fill.
- Identifying Buyers and Marketing Your Business Confidentially
Once your team has been put together, we’ll put together a confidential business review report for you. The document will contain a description of your business, provide financial summaries, describe the markets and industries that your business operates in, identifies competition, highlights potential opportunities and details the operations and personnel of your business. The purpose is to provide enough information for your buyers to become interested in your business and pique their curiosity so that they’re willing to meet you, speak with you and tour your business before making an offer.
We do not market your business until you approve of this report. It is never sent nor shared with buyers until they have signed a confidentiality agreement disclose their financial resources to prove they are able to purchase your business. This is to filter out any potential misuse of this document. At the same time, we will also develop a target list of buyers and explain how we plan to market to these buyers.
Depending on your business, buyers may include financial buyers that are interested in seeing a return or buyers that want to expand their own businesses by taking more control over their respective industries. Typically, we target buyers using the following methodology:
- We search our internal buyer database that consists of investors, representatives of private equity groups and individuals.
- We utilize research gathered from subscribed databases and internet searches that enable us to profile potential buyers.
- We post generic confidential descriptions of your business on up to eight different business brokerage website that we are subscribed to. These brokerage websites are used by buyers from all over the world.
Our marketing is varied so that we can target a wider audience, but we always seek your approval before we go ahead with our decisions. Our goal is to find at least three interested buyers in order to create competition so that we can maximize the sale price.
- Pre-Screening Potential Buyers
We vet all of the buyer inquiries by interviewing them in person. In some cases, we may use telephone or internet communications in order to speak with them. We only do this once the individual has signed a non-disclosure agreement and given us proof of their financial strength to prove they are serious about purchasing your business. Afterwards, we present them our confidential business review that you have approved. If you are worried about confidentiality, then we can offer you the potential buyer’s name before we release the information to them.
- Meeting With the Buyer
Once the buyers have successfully cleared our pre-screening process and have proven that they are serious about purchasing your business, we’ll arrange for an in-person meeting. Most of the time, buyers will want to see your business and meet you on-site at your company. In most cases, these meetings are scheduled after hours or whenever you are able to show your business. We will always have a representative from our company attend these meetings.
- Purchase Offer
Once the meeting has concluded, a buyer may wish to make a serious offer for your business. They will do so in the form of an asset purchase agreement (APA) or a non-binding letter of intent (LOI). These documents will outline the basic terms of the transaction and we will discuss the offer with you. We will make recommendations on whether to accept or decline the offer, or even counter it. In the event there are multiple offers for your business, we will ensure that all buyers are treated fairly and given equal opportunity to make their offers in order to provide you with the best sale price.
- Due Diligence
If either the APA or LOI is accepted, the buyer has 30 to 45 days to perform their due diligence. During this period, you must agree to not negotiate with other buyers. However, we will continue to follow up buyer inquiries should the transaction fall through. During due diligence, the buyer will request to verify all of the information in the confidential business review. They will request to see documentation such as bank statements, tax returns, copies of leases, contracts with suppliers or customers and so forth. Before they proceed, we ask that the buyer put forward a due diligence list and we will ensure it is reasonable and appropriate before accepting it.
Once the due diligence period has concluded, the next step is to move to closing. If an LOI has been used, then we request the buyer to present a draft of the purchase agreement and any other relevant documents that are required to close. During this time, we may work with the buyer to secure financing.
Once due diligence has concluded and both parties are satisfied with the purchase conditions, we’ll introduce a closing attorney that is experienced in business sales. We’ll put together all of the relevant documents required to close the transaction. The attorney will implement the decisions that both parties have negotiated and mediate any disagreements that could arise during the closing process.
The costs of hiring a neutral attorney to close the deal are split between the buyer and seller. However, we encourage you to ask our own attorney to review the documents to ensure that the agreement you have reached is represented in the closing documents. It will take roughly between 70 and 90 days from the offer to closing.
We’ve successfully helped dozens of owners through this long and complicated process for many years. We carefully advise each owner, all the while sticking to this process in order to guarantee you the best deal for your business.
If you are interested in selling your business, don’t hesitate to contact us today.