How to sell a business

It’s approaching fast: the time is coming when you won’t be in charge of the business. Perhaps you’re nearing retirement, struggling with your health, or maybe you just have a case of serious burnout; there are many reasons Owners decide it’s finally time to sell. It’s a difficult decision, but once you’re truly ready, it’s time to begin the process.

The first step is the most important one, and usually makes or breaks the sale: choosing the right business broker to represent you! You’ll rely on them to properly value the business, prepare the information package and supporting documents, advertise and market the business, negotiate offers, facilitate due diligence and escrow, and even negotiate with the landlord. And remember, the talent level, experience, and integrity of business brokers varies widely. 

So how can you select a good business broker? There are several things to consider, but in short, your broker should have a good reputation and plenty of experience selling a variety of businesses. They should understand and be aligned with your personal and professional goals from the sale. Lastly, you should be personally comfortable with them. Personality and style fit are just as critical as the professional and experience fit. You will disclose a lot of personal and financial data to them, and they will be a significant part of your life for the next 6 to 18 months in this very important deal! 

Start by getting referrals, visiting business brokerage websites, and interviewing brokers. Once you’ve narrowed it down, always meet the broker face-to-face to confirm you're comfortable working with them. Don’t forget to see an example of how they market other businesses; the material should be engaging and professional. 

Once you've selected the broker to represent you, you'll sign a listing agreement which outlines the terms of the broker's representation; there are some key terms to expect out of any reasonable listing agreement. Your broker can then start the hard work of selling your business.

Brokers do great deal of upfront work so they can professionally and aggressively market each business for sale. 

Prepare an Information Package

The information package summarizes the business, describes the circumstances of the sale, and shares why it is an opportunity to an interested Buyer. It includes photos and usually a video tour or an owner interview to add further depth. The package provides sufficient information for Buyers to decide either: (1) this business is interesting and worth further investigation, or (2) they should pass because it’s not a good fit for them.

Your broker will ask for your business documentation to create the package: financial statements, lease, asset lists, distribution agreements, non-compete agreements, work samples, marketing media, copies of any patents/intellectual property, special licensing, etc. We process this documentation, prepare it professionally, and use it to create the package and help answer Buyer inquiries. 

Become Knowledgeable about the Business

A good broker will quickly become knowledgeable about your business; it’s why we ask all those pesky questions! 

• We are usually flooded with Buyer inquiries once we begin marketing. Since we only get one chance to make a good first impression on each Buyer, we must be prepared to answer any questions we may be asked. 

• As we learn about each business, we occasionally uncover obstacles to a smooth sale: unsaleable inventory, unfavorable lease restrictions, expensive deferred maintenance, etc. We look at each business with a trained eye to identify and resolve any issues before going to market! 

• We confirm the valuation of the business, and make sure the asking price is one the market will bear. Pricing too high, a business won't receive enough inquires to find the right Buyer. Priced too low it will receive phenomenal interest, but we probably left money on the table. 

By the time a good broker is finished, they will be able to represent the business with the highest level of knowledge and professionalism! Sellers can support this effort by providing all requested documentation quickly and accurately! The longer we wait to receive the documents we need, or the less accurate they are, the longer it takes us to bring your business to market. So help your broker out!

Your business is “on the market”!! Each business is aggressively advertised, 100% confidentially and anonymously. BottomLine advertises to:

• Our database of interested Buyers.
• The major business-for-sale websites.
• BottomLine’s website!
• Specialized groups (trade groups, associations, etc.) that may be interested in your particular type of business.
• Assorted other venues, where appropriate for the business.

Sellers rest assured: no Buyer receives detailed information about a business until we receive a signed Non-Disclosure Agreement. 

We typically receive many inquiries on our businesses for sale, so the challenge is usually finding the “right” Buyer: one that is financially qualified, has the right experience, and “has the right story” behind wanting to own your business. We routinely get hundreds of inquiries before we sell each business; our job is to eliminate the tire kickers and unqualified Buyers and focus on genuinely interested parties. We’ll often interview dozens of prospects before even one becomes interesting.

However, once a prospective Buyer gets serious, we'll work with them in earnest. After prequalifying them, we’ll educate them about the business: this involves answering detailed questions, facilitating conference calls with the Seller, and arranging discrete tours of the business where appropriate. The goal is to help the interested Buyer decide if this opportunity is a “good fit” for them.

When a qualified Buyer is motivated to own, and they find a business that is the right fit at the right price, that’s the recipe to receive an Offer!

You’ve received Offers to buy the business; that’s very exciting! Now it’s time to evaluate them. The choices seem simple: you can either accept, counter, or decline.

However, there’s a lifetime of nuance in those options, and that’s where an experienced Broker really pulls their weight. We'll never make that decision on behalf of a Seller; we only facilitate the process. We can (and do) advise on what you might consider in the circumstances, how the terms of the offer might affect you, and what the broader impacts of your decision might be. A good broker has seen hundreds of deals over the years and can look at your circumstances objectively and from a different perspective to help you decide.

Expect some back-and-forth negotiations. We will handle the mechanics of the process until a mutually acceptable offer is reached; rarely are more than one or two counter offers necessary. And remember, price is not always the most important term of the deal!

Due diligence, the audit where the Buyer verifies the accuracy of the business’s books and records, must be completed before a Buyer will open escrow. Due diligence is essentially a very detailed quality control check: the Buyer is confirming that the business is “as advertised”.

Sellers can facilitate due diligence by producing all the requested documentation for their Buyers quickly and correctly. Keep the Buyer’s perspective in mind: they must review all the documents for accuracy, perform any facility or equipment inspections, and complete any financing or franchisor prequalification. At the end of the process, everything has to “pass the gut check” that buying this business will be a good purchase, well-suited to their business goals. That’s a lot to accomplish in a limited period of time! But generally, if all questions are answered to their satisfaction, your Buyer will have confidence in their purchase and will be excited to open escrow.

Keep in mind:

• Buyers are typically wary entering diligence. Answering their questions helps inspire confidence, so everything you do (within reason) to support that effort is usually worthwhile.
• You will produce a great deal of documentation in short order, and then wait for the Buyer to respond with yet more questions and documentation requests. Be patient, your Buyer is typically just being thorough. As long as they make steady and reasonable progress, honor their requests. 
• Don’t get frustrated if the Buyer asks questions that seem obvious or that you feel implies there are issues with the business. Their job is to fact check to make sure their investment will be a sound one. Again, be patient. 
• Remember, you’re evaluating the Buyer too! You’ll get a sense of whether they have the qualifications and experience to run the business, and if they can work with your customers. Your Broker should also receive documentation verifying the Buyer can finance the transaction.

Due diligence concludes when the Buyer’s questions are answered to their satisfaction, and any due diligence contingencies are released in writing.

Escrow serves a valuable role; no business purchase should be without one. The escrow company facilitates completing the transaction, ensuring all the terms and conditions of the purchase agreement have been met before allowing the sale to complete.

Escrow is a crazy-busy time for Buyers; they’re performing all the tasks to take over a new business. Escrow is relatively busy for Sellers as well: you must run the company “as usual”, prepare for your upcoming exit, and support the Buyer’s efforts to step into the business.

Those tasks frequently include: 

• Working with the Buyer’s team to provide any documentation or answer any questions. Financiers (bankers), attorneys, accountants, real estate appraisers, inspectors, etc. often require your input.
• Working with escrow to clear any outstanding debts with tax agencies, landlords, or other creditors. 
• Working with escrow to remove any issues with clear title to the assets.
• Working with the landlord to assign the lease.
• Working with the franchisor to clear and debts and transfer the franchise.

Escrow often feels to Sellers like they're simply waiting for the Buyer to “just get it done”. Just remember they’re working diligently to complete their side of the deal, but they have A LOT to accomplish in a short period of time. Also remember that Buyer’s contingencies remain active during escrow; if any contingency isn’t fulfilled and released, the Buyer won't be obligated to complete the purchase.

Actually, your most important task during escrow is to run the business at the top of your game. Whatever your primary day-to-day role is, put in your best effort. Continue to drive sales ferociously. You want to deal your Buyer the best starting hand possible. They are buying a going concern, and Buyers are typically nervous that business will slide right during escrow, right as the they are about to take over. Leave the company in great shape, so you have a strong finish and a satisfied Buyer!

You're no longer in charge! You’ve entered training and transition, that fixed window of time to bring the Buyer up to speed. The training time varies among businesses and was agreed upon in the Offer.

Training

Train your successor thoroughly: impart your wisdom and experience. Focus on teaching those skills and knowledge the Buyer didn’t come with, where they can learn the most from you. These are typically the core areas of the business’s value: operations, a formula, a process, sales strategies, technical knowledge, etc.

If you’ve owned the business a long time, this is your chance to pass on your experience and ensure its’ continuity. The more thoroughly you train the Buyer, the better chance of success they will have!

Transition

As you’re training, you’re also transitioning operations and key relationships to the Buyer. Again, this varies among industries, company size, and the role you filled in the business, but your job is to support the new owner as you fade into the sunset. You'll transition the core areas of the business, including:

• Day-to-Day Operations, which may range from supervising key staff and upper management, to operational details such as alarm codes, keys, utilities, passwords and accounts, bank accounts, etc.
• Employees: Positively support the Buyer and his new role in the company. The employees may be nervous about the transition, so reassure them they are in good hands.
• Suppliers and Partners: Help your Buyer leverage any existing perks such as special discounts, volume pricing, training or preferred product availability.
• Clients: Personally introduce your Buyer to key accounts and share your strategies to maximize those accounts’ value.
• Industry Relationships: Introduce your Buyer to any industry relationships worth having, so they have a chance to benefit from and cultivate them.

Be supportive of your Buyer: they're ramping up on a new business, so you may still run pieces of the show until they get fully settled in. It’s a lot to swallow all at once.

A final thought: Always over deliver during training and transition. The details of the purchase will fade over time, but your Buyer will always remember how well (or poorly) you treated them on your way out.

You’ve handed over the business, which is operating full speed ahead under new leadership. There are always loose ends after you’ve passed the reins, so it’s time to wrap up and wind down: 

Wrap Up

Outstanding tasks rarely line up 100% with the handover date, so there are usually loose ends for the business that overlap into the Buyer’s ownership. They vary from deal to deal, but often include: 

• Completing any outstanding projects.
• Billing and collecting any final accounts receivable.
• Paying any outstanding accounts payable.
• Paying any remaining government taxes: sales, employment, etc.

Wind Down

Wind down activities vary widely. Sellers frequently close down the entity that owned the company; sometimes because it will no longer be used, other times for liability protection. Wind down activities may include: 

• Closing supplier accounts.
• Closing state accounts.
• Closing the entity with city, state, and federal agencies as required.
• Financial wrapup, such as closing bank accounts, credit cards, etc.

Sellers often have extended relationships with their Buyers after the training. You may be receiving note payments or have a consulting agreement with the new owner. Maybe it’s as casual as being available for your Buyer to call for help when they get in trouble.

Whatever the case may be, you’re now free to move on to whatever awaits you! Enjoy your newfound freedom!