Planning to Sell Your Business? - Know How the Business Sale Process Works
The actual sale process will vary depending on the motivation of the business owner. A seller, who needs to sell the business quickly and is, therefore, willing to accept a lower price, may be more interested in taking certain shortcuts. While a seller who wants to obtain the highest possible price while achieving his most important sale objectives, would have to be willing to endure a longer, more intensive sale process. If the objective is to transfer the business internally, to family members or management, the deal structure will be completely different than if the objective is to have the business transfer to a third party or strategic buyer.
Assuming that the seller is looking to optimize both sale price and the opportunity for achieving specific objectives, the process should actually begin with identifying and engaging a qualified, independent business intermediary who will only represent the seller’s interests.
The Business Sale Process
An experienced business intermediary will begin the process with a comprehensive fact-finding session consisting of many of the questions asked in this guide. The more prepared you are with your answers ahead of time, the more quickly and effectively your advisor can initiate the process. The total time frame for this sale process is approximately nine months, or six months under ideal circumstances. Once fully engaged, your advisor will conduct the following steps (approximate time frame in parenthesis):
- Conduct thorough due diligence: Learn everything there is to know about the business. (Up to 1 month)
- Write a memorandum: A selling document that briefly describes the business in the best possible light. This is, essentially, packaging the business for sale. (2 weeks)
- Research the market: Determine who the ideal buyers are, including financial buyers (private equity firms) and strategic buyers. Develop a targeted list of potential buyers. (2 to 3 weeks)
- Go to market: With a memorandum in hand, reach out to potential buyers via phone calls and emails. Present a one-page summary to elicit any indication of interest. Have the prospective buyer sign a NDA and present your memorandum. In the right setting, this could generate as many as fifty interested parties. (2 to 3 months)
- Qualify the buyers: Following additional Q & A, if they want to move forward, request a letter of interest, along with the price range they are considering, a summary of their intentions for the business (how they align with the seller’s objectives), and how they would finance the purchase. A typical engagement might attract three to ten qualified buyers. (1 month)
- Examine the business: Invite interested and qualified buyers to visit your facility, meet management and learn more about the business. This may narrow the list of prospective buyers down to three or four.
- Negotiate: Negotiations with the buyers typically begin as soon as they sign a letter of intent in which they have indicated a price range. As the list of prospective buyers is narrowed through the process, negotiations will intensify until the list is narrowed to one or two. (1 month)
- Seller letter of intent: When the most qualified and interest buyer is identified, the seller signs a letter of intent to grant exclusivity from that point forward.
- Additional due diligence and financing: The prospective buyer will conduct additional due diligence while he or she is arranging for financing. Legal considerations are addressed, paving the way for the final transaction. (2 to 3 months)